Trifast Annual Report 2017

Plain-text annual report

T r i f a s t p l c A n n u a l R e p o r t f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 7 ustrial faste nin d In G l o b a l f o o t p r i n t HOLDING THE W i s t c i a l e p s s g High quality m O R L D T O G E T H E R a n u f a c t u r i n g i r e d v o r p e ervic Full s Design and applicatio n e n g i n g ri n e e Trifast plc Annual Report for the year ended 31 March 2017 Stock Code: TRI sluglineslugline Trifast, leading international specialists in the engineering, manufacturing and distribution of high quality industrial fastenings to major global assembly industries Mission and vision • To continue to grow profitability and improve stakeholder returns through organic and acquisitive growth, and by driving continual efficiencies throughout the organisation • To be acknowledged commercially as the market leader in industrial fastenings in terms of service, quality, engineering support and brand reputation • To promote an environment that is safe and fair, which motivates, develops and maximises the contribution and potential of all TR employees INVEST IN OUR KEY STRENGTHS 1 2 3 Design and application engineering know-how adds value throughout the purchasing cycle High quality, low cost manufacturing across eight global locations forms the foundation of our industry reputation which is second to none Reliable distribution and supply solutions around the world that flex to fit our customers’ needs 4 Continuous investment into quality and operations and supply keeps us one step ahead of our customers’ needs 5 6 A strong balance sheet and flexible banking facilities provide the confidence to invest for growth Progressive dividend policy and creating shareholder value Visit our website www.trifast.com sluglinesluglineFINANCIAL HIGHLIGHTS* Revenue 15.6% Underlying profit before tax† 28.1% 2017 2016 2015 2014 2013 £186.5m £161.4m £154.7m 2017 2016 2015 2014 2013 £129.8m £121.5m £9.2m £7.3m £20.5m £16.0m £14.3m † Please see the five year history on page 146 for the GAAP measure Underlying diluted earnings per share Diluted earnings per share 28.3% 22.4% 2017 2016 2015 2014 2013 12.82p 9.99p 8.68p 2017 2016 2015 2014 2013 5.95p 4.73p 10.40p 8.50p 7.07p 5.76p 4.18p Return on capital employed Dividend per share 140bps 25.0% 2017 2016 2015 2014 2013 19.9% 18.5% 18.6% 16.3% 2017 2016 2015 2014 2013 12.1% 1.40p 0.80p 3.50p 2.80p 2.10p * Before separately disclosed items (see note 2 in the financial statements). The relevance of these measures and calculations are also discussed in note 2 and the Glossary on page 144. For reconciliations to equivalent GAAP measures, please see note 34 in the financial statements and the five year history on page 146 OPERATIONAL HIGHLIGHTS — All regions experienced strong revenue growth at CER ranging from 4.6% in the UK to 12.3% in the US — Gross margin exceeds 30% for the first time in our history — Significant FX tailwinds add £2.4m to underlying profit before tax — Strong cash conversion reduces net debt to £6.4m (normalised £7.6m) — TR España – a base to grow from in one of Europe’s most vibrant economies — Capital investment of £2.9m increases our manufacturing capacity and capabilities, with more to follow Read about our Group Strategy on pages 18 to 19 CONTENTS Strategic report The World of Trifast Chairman’s letter Trifast culture Global marketplace Our Group business model Our products Group strategy Core strategy Strategy in action Investing in people Investment driven growth Continue to add value and differentiate Acquisitions Operational efficiencies Key performance indicators Our time at Trifast Business review Our Group performance UK Europe USA Asia Corporate social responsibility Trifast in the community Marketing report The TR website Risk management Introducing the lead team Celebrating long service across the Group Other long serving employees Our governance Directors’ report Corporate governance Audit Committee report Nominations Committee report Directors’ remuneration report Statement of Directors’ responsibilities Our financials Independent auditors’ report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of changes in equity Company statement of changes in equity Statements of financial position Statements of cash flows Notes to the financial statements Shareholder information Investor perception study Glossary of terms Five year history Company and advisers Financial calendar Visit www.trifast.com to view a wide range of information of interest to institutional and private investors 04 06 08 12 14 16 18 21 23 24 25 27 28 30 32 38 39 40 41 42 44 46 47 48 54 57 58 62 64 66 69 70 87 91 95 96 97 98 99 100 101 142 144 146 147 148 01 sluglinewww.trifast.comStrategic Report sluglineSTRATEGIC REPORT The World of Trifast Chairman’s letter Trifast culture Global marketplace Our Group business model Our products Group strategy Core strategy Strategy in action Investing in people Investment driven growth Continue to add value and differentiate Acquisitions Operational efficiencies Key performance indicators Our time at Trifast Business review Our Group performance UK Europe USA Asia Corporate social responsibility Trifast in the community Marketing report The TR website Risk management Introducing the lead team Celebrating long service across the Group Other long serving employees 04 06 08 12 14 16 18 21 23 24 25 27 28 30 32 38 39 40 41 42 44 46 47 48 54 57 58 slugline sluglineTHE WORLD OF TRIFASTA MARKET LEADERTrifast is known commercially as TR to its customers and suppliers in Europe, Asia and the Americas We have a reputation as a market leading global engineering, manufacturer and distributor of industrial fastenings and category ‘C’ components to a wide range of industries and customers. Around a third of our income derives from TR’s own manufacturing. The key end markets in which products can be found are automotive, electronics and domestic appliances. Our customers are a mix of multinational and national companies and distributors across the world.Go to www.trifast.com to see our locationsRead the Business review on pages 32 to 41 HOLDING THE WORLD TOGETHERFasteners are all around us, they are used extensively in our everyday lives. So much so, that many of us take them completely for granted. But, what would happen if you were to imagine a world without fasteners ... ? Could you: •comfortably drive a car with seats that don’t move; or•safely spin your clothes in a washing machine where the drum isnot attached; or even•keep your cool this summer without fans, refrigeration or air con?Wherever something needs to slide, rotate, expand, vibrate, be repaired, replaced, or simply stay firmly in place, you need the right fastener for the job and that’s where TR comes in. Whether it’s fasteners for space exploration or simply for vacuuming your home, we have been supplying specialised industrial fasteners to OEMs across Europe, USA and Asia for nearly 45 years. We quite literally have been “Holding the World together” HOLDING THE WORLD TOGETHERIndustrial fastenings specialist High quality manufacturing Global footprint Design and application engineering Full service providerHOLDING THE WORLD TOGETHER04Trifast plc Annual Report 201704Trifast AR2016 Strategic and Governance.indd 421/06/2017 14:20:33Our sites are based in 27 global locations: UK Belfast Birmingham East Kilbride Manchester Newton Aycliffe Poole Uckfield Lancaster Europe Germany – Verl Holland – Oldenzaal Hungary – Szigetszentmiklos Ireland – Mallow Italy – Fossato di Vico Norway – Skytta Poland – Warsaw Spain – Barcelona Sweden – Nacka USA Houston Asia China – Shanghai & Beijing India – Bangalore & Chennai Malaysia – Penang & Kuala Lumpur Singapore Taiwan – Kaohsiung Thailand – Bangkok Revenue by location* Employees by location Manufacturing & distribution Customer sectors 3% 2% 26% 35% 35% 38% 44% 33% 19% 10% 21% 31% 65% 20% 18% • UK • Europe • Asia • USA * including intercompany revenues • UK • Europe • Asia • USA • Distribution • Manufacturing • Automotive • Electronics • Other • Domestic appliances • Distributors A S U Y N A M R E G Y A W R O N N E D E W S D N A L O P D N A L L O H Y R A G N U H Y L A T I K U D N A L E R I I N A P S Export countries Distribution subsidiaries Manufacturing subsidiaries Our sites N A W A T I A N H C I D N A L I A H T I A S Y A L A M E R O P A G N S I I A D N I 05 sluglinewww.trifast.comStrategic ReportCHAIRMAN’S LETTER Dear Shareholder, The older that one becomes, the quicker the time passes it seems, and this is certainly the case with our progress throughout the 2016/17 Financial Year that this, your annual report, will explain. In recent years, we have dedicated ourselves to blending organic revenue growth with carefully chosen acquisitions under the umbrella of Continuous Improvement within our operational processes and procedures. This recipe for consistent profit growth clearly keeps on giving as we report another successful year completed and near our first quarter end for the current 2017/18 period. Our Board is regularly asked for the business outlook implications from Brexit, especially with part of our global interests being within the automotive Tier 1 sector. The most strategic impact is likely to be import and export tariffs in and out of the UK. Fortunately, with our substantial logistics facilities based in Germany, Sweden, Hungary and Holland, plus our new Spanish site, we can switch purchase, warehousing and sales activities between Europe and the UK should the markets demand. Our manufacturing and logistics facility in Italy also provides substantial flexibility to our supply chain should the need arise. Despite much research and many site visits, this past year has not yielded a suitable acquisition that we felt comfortable with. However, our consistent organic growth provides robust investor returns sufficient for us to maintain our strict acquisition criteria. This organic growth trajectory is not only driven by selling more to existing customers, and winning new customers, but also by our introduction of new product ranges that are known to be already in demand from our three key market sectors of automotive, domestic appliances and electronics. Our most strategic new product investment by far is into enclosure hardware (e.g. locks, hinges, handles, cable management etc.) where the global market spend extends to hundreds of millions of dollars, and where the majority of our international OEMs are already large users, 06 Trifast plc Annual Report 2017 sluglineHOLDING THE WORLD TOGETHERShare price (p) 220.00 170.00 120.00 70.00 20.00 Sept 11 Mar 12 Sept 12 Mar 13 Sept 13 Mar 14 Sept 14 Mar 15 Sept 15 Mar 16 Sept 16 Mar 17 Share price 31 March 2017: 214.3p (1 April 2016: 130.0p) often paying premium prices due to design, specification and supply constraints. We believe that our enhanced and unique supply chain flexibility provides TR with a competitive market advantage on this vast range of high volume components. This year has seen another period of major capital and people investment to help sustain our future prosperity, including the significant decision to open a greenfield distribution and technical support facility in Barcelona. Although the UK has grown its automotive production significantly in the last decade, it is not widely known that Spain produced 50% more units than the UK last year, providing TR with a clear opportunity to invest to respond to this market demand. Market dynamics have also prompted our TR Midlands team to acquire a second building to accommodate more efficient warehousing plus a training, technical and customer fulfilment facility – mainly to support our automotive customers. The automotive sector is the most prolific exponent of design and production consolidation and rationalisation on a global basis, which has seen Trifast ramp up its technical support and supply chain disciplines across the Group. TR VIC in Italy, TR Kuhlmann in Germany, TR Inc. in USA and TR Spain are now aligned with TR in the UK, Hungary, India, Thailand, Malaysia, Taiwan, Sweden and Holland with the consistent high level capabilities required by this industry. Recent demand has also turned our focus on to Japan, where currency changes and high quality demands have made our exports into that country more competitive. This past year has seen a whole raft of new operational processes and people resource initiatives, with our Executive team grasping the reins of a wide range of improvement opportunities that range from broadening our HR support, management training and succession planning to digital investments and treasury management. Most of these activities span more than a year and so I look forward to updating you at a later stage with what I believe will be significant progress. Having re-joined Trifast with Jim Barker way back in March 2009, I have had the absolute privilege in witnessing first the recovery, and now the ongoing underlying growth and development of what I regard as a uniquely dynamic, professional and caring organisation that has every reason to feel confident, but not in any way complacent, about its future prosperity. I fundamentally believe that we now have the most competent and committed management teams across the Group that I have ever seen in my many years with the Company. This trust has allowed me to step down from my executive role of the last eight years, while still remaining loyal and supportive as Non-Executive Chairman of Trifast going forward. I believe very much that every employee is important and that management must constantly endorse that personally with daily encouragement, recognition and mentorship. It is with pride that I can claim that the TR culture is very light on ego, politics and status seeking, whilst being big on loyalty, commitment and work ethics. As this is a core requirement for success I want to sincerely thank our management and all our staff for their contribution to our Company and its excellent performance, not only on my behalf but on behalf of all our stakeholders. Yours sincerely Malcolm Diamond MBE Chairman 12 June 2017 Read the Business review on pages 32 to 41 Read about Corporate governance on pages 64 to 65 07 sluglinewww.trifast.comStrategic Report HOLDING THE WORLD TOGETHER TRIFAST CULTURE IT’S ALL ABOUT THE PEOPLE The Trifast Group prides itself on its family culture and this can be felt in every location, no matter where that is in the world All of our employees feel part of the Group and are supported to constructively challenge processes and procedures where necessary and to contribute to the continuous improvement of the Group. All employees are provided with equal opportunity through our recruitment, selection, training and development processes. We are committed to ensure all of our workplaces throughout the world are free from unlawful or unfair discrimination of any kind and that all employment decisions are made in a fair and objective way. Core values Trust Trust Respectful of each Respectful of others’ abilities each others’ abilities Integrity / Open Integrity/ & Honest open & honest Fairness Fairness Adding value and Adding value and embedding quality in everything we do embedding quality in everything we do Striving to achieve Striving to excellence / continual improvement achieve excellence/ continual improvement - Team player acting for the Team player good of the group, recognis- ing the bigger picture acting for the good of the Group, recognising the bigger picture People focussed / People handling with empathy focused/ handling with empathy Leadership giving the Leadership giving empowerment to employees to take the empowerment responsibility for their own actions to employees to take responsibility for their own actions Commercially minded / Commercially entrepreneurial & innovative minded/ entrepreneurial & innovative 08 Trifast plc Annual Report 2017 Trifast AR2016 Strategic and Governance.indd 8 slugline 9/28/2017 3:28:11 PM Strategic Report sluglineHOLDING THE WORLD TOGETHER TRIFAST CULTURE GROUP UNITED KINGDOM Colin Coddington IT Director Helen Toole HR Director Dave Fisk Managing Director TR Fastenings, UK Maria Johnson Finance Director TR Fastenings, UK Stevie Meiklem Operations Director TR Fastenings, UK Ian Carlton Director of Quality “Those that join TR, and like it, tend to stay for a lifetime. I joined 21 years ago. TR’s success has been built on a family culture; employees are looked after and cared for in a way that other companies struggle to understand and compete with and are central to TR’s core values” Colin Coddington IT Director “The Trifast reputation has been built on a foundation of the highest level of customer service that is second to none within the fastener industry. Reliability, quality and staff excellence underpin the culture of the Group by forming a brand image recognised throughout the world as market leader” Sam Wilson Managing Director Lancaster Fasteners Sam Wilson Managing Director Lancaster Fasteners USA ASIA Gary Badzioch Managing Director USA Joe Haymes Strategic Sales Manager USA Charlie Foo Managing Director TR Asia Endy Chin General Manager Singapore Phua Yong Sang General Manager China “ TR incorporates its high standards for quality and valued customer centric approach throughout its organisation, by instilling a ‘family culture’ environment that represents honour, integrity and compassion to all its employees” Gary Badzioch Managing Director USA Wilson Chen General Manager Taiwan Piong Song Tong General Manager PSEP, Malaysia HK Tan General Manager TR Formac Malaysia Victor Cheong Country Manager India David NG Country Manager Thailand 10 Trifast plc Annual Report 2017 Trifast AR2016 Strategic and Governance.indd 10 slugline 9/28/2017 3:28:45 PM Strategic Report Frank Niggebrügge Managing Director Germany Peter Henning Director Germany Erich Hütter Director Germany Ron Vlutters Managing Director Holland Zoltan Csengeri Location Head Hungary Dara Horgan Location Head Ireland Karol Gregorczyk Sales & Development Director Italy Francesco Cricco Supply Chain Director Italy EUROPE “ We have been successful implementing our core values in balance with our responsibility to our customers, community and employees” Jan-Erik Storsve General Manager Norway “ It’s a dynamic environment that has allowed me to grow and develop attitudes towards sales” “ It’s a multinational Group but designed on a human scale” “ Being able to do something and improve your job is an opportunity that is given to everyone” “ There are challenges daily – I’m never bored” TR employees Italy “ Trifast believe in a consistent standard when dealing with everyday tasks to ensure we provide our customers with trust and confidence. Putting emphasis on these values will give us a competitive edge, especially with our high standard of reputation to maintain. We need to understand the different business cultures that surround us in order to have an advantage over other global players. Thus moving forward, we should look into these areas to secure better opportunities in an increasingly competitive market” HK Tan General Manager TR Formac Malaysia Charlie Foo Managing Director TR Asia Jan-Erik Storvse General Manager Norway Raul Fernandez Commercial Director Spain Roberto Bianchi Managing Director Sweden www.trifast.com 11 Trifast AR2016 Strategic and Governance.indd 11 slugline 9/28/2017 3:28:57 PM HOLDING THE WORLD TOGETHER Customer centric Working at corporate level Full service provider Global structuresluglineReflecting on the financial year, my synopsis is that it has been an exciting year, not without some challenges, but rich with opportunities. We faced some unknowns at the start of the year with Brexit and the American elections and how both of these unusual situations could affect some areas of our business. However, I was convinced that we had enough traction with our global sales strategy and that we would be able to ride it out, as we have, and still have a long term solid pipeline of business in place. The sales and marketing strategy is constantly being reviewed, refined and enhanced. We have had strategies in place to manage each of the key sectors for automotive, electronics, domestic appliances, other and sales to key distributors since 2008.Our global strategic business team is made up of Global Account Directors ‘GADs’, and Strategic Account Managers ‘SAMs’ who work at corporate level with multinational companies across the world. Their role is to penetrate more of the sites giving them the service level they require, with all the systems and processes they expect. These are very discerning clients, but once we have been approved as a vendor to supply, the doors open to a world of opportunity in their multiple sites. From early design involvement, providing proactive technical support right through to the logistics service that we provide is where we add value. We are seen as an ‘FSP’ and that elevates our status above that of many of our competitors. This is the highest growth area of our business and we work very closely with over 100 companies globally, with multiple sites, on this basis. We have regional, and very important accounts that are strategic to our local sites, either based on turnover value or potential for growth. We follow the same strategies at regional level and these are serviced by Business Development Managers (‘BDM’), many of whom have technical backgrounds which is a vital part of the customer requirements. There has been significant growth this year through the distributors who purchase our proprietary products, much of which we manufacture ourselves in the UK and in Singapore. We are constantly adding additional sizes to enhance the range and despite, or because, of Brexit we have seen our sales in Europe from the UK grow substantially. This is due to the excellent service we are able to offer and our sound stocking policies, ensuring we have the right stock positioned to take advantage of the increased interest from Europe. Both Lancaster Fasteners and TR Fastenings, Uckfield have seen the most growth during this time, and it continues unabated. We have had successes with two major catalogue companies who carry an extensive range of our Group products, and we have work in progress with a third company. Sales of our self-clinch product, the plastics range and the newly launched enclosure range has further enhanced the sales growth. In essence we have a channel to market strategy for each sector, type of customer, including the transactional ‘one off sales’ where we have an extensive stock range that meets their needs with a fast delivery turnaround. GLOBAL STRATEGIC TEAM This team was formed initially to manage and retain business that was transitioning from the UK and Europe to lower cost countries in Asia 16 years ago. The team has expanded and now encompasses Strategic Account Management (‘SAM’) servicing multinationals. We work with their corporate teams to leverage business opportunities, becoming a Full Service Provider (‘FSP’), and support them in multiple locations with a consistent customer centric service. Within the team we have sourcing experts managing the ‘AVL’ vendors that are critical to the supply chain, product specialists, and a project management team working in tandem with global marketing. We work with our local sites in a bottom up / top down method using the business intelligence and relationships that are key to winning and retaining business with these discerning customers. Of course we have to be commercially competitive but the value add of the service we provide is a currency too. This is a key pillar in our sales strategy and we have seen consistent growth in the top 100 accounts, and our penetration into more of their sites. GLOBALMARKETPLACEHOLDING THE WORLD TOGETHER12Trifast plc Annual Report 2017Trifast AR2016 Strategic and Governance.indd 1221/06/2017 14:20:36Strategic Report Glenda Roberts Group Sales Director Jo Devlin Head of Projects – Strategic Team Chris Black Director of Automotive Business Development Jeremy Scholefield Director of Strategic Business Martin Greenwood Director of Supply Chain Development Kevin Rogers Plastic Products Sales Development Manager Phil Callaghan Group Logistics Manager Our focus is on constantly adding more products to our portfolio to increase our ‘share of wallet’ in existing customers and creating new sales to new customers. This year we launched the enclosure range of products. This has been the most ambitious and extensive range that we have ever brought to market. We have substantial sales already with sheet metal and enclosure companies and following the principal of increasing our penetration with these existing accounts. We have a further two new product ranges to bring to market this year which will stimulate more organic growth within existing customers and attract new potential ones. We have had challenges in the UK since Brexit and the ensuing forex issues. We have worked with our global AVL vendors to try to at least share the burden of the price increases or leverage more volumes with them to negate increases. We are having some degree of success and as our revenue continues to grow they will see the benefits of this reflected in new business. Our global enquiry log continues to show that we have a strong pipeline ahead of us, particularly in the automotive sector. Many of the platform builds that we have won have a life span of at least six years. The enquiry data it provides assists us with our forecasting as we track our wins, for which TR site and when the builds commence, proving once again what an invaluable and unique tool this is. The marketplace is buoyant and we have seen growth in the electronics industry particularly in middle and eastern Europe. Our product is in the biggest brands in the world supplying companies that want the support and service that we provide in these volume and fast paced production facilities. We also have seen hard work pay off in less buoyant markets such as Northern Ireland where there has been dogged determination by the team to take a larger slice of a smaller cake. So much so that their site is bursting at the seams and they will be moving to a new and larger facility soon. Together with the strategic team we put a plan together to open a site in Barcelona to capitalise on the growing automotive and electronics sectors. We now have an ultra-modern site in a great location, close to the automotive clusters, and we have been operational since March 2017. The Houston team have had double digit revenue growth this year and have seen automotive grow to 26% of their turnover. They have a strong forward pipeline and they too will move to much larger premises this year, as they have outgrown the facility that we only opened six years ago. Asia is embracing the automotive sector too as we follow and develop the same companies we are servicing in Europe who have now located out there. TR China have grown their automotive business to 27% of their turnover in less than four years and have some large recently won contracts already secured. We continue to recruit technical sales engineers, and three new engineers have recently started in the UK, China and Japan. Our strategy for growth continues and I am confident that we have enough momentum to achieve our forecasts. Glenda Roberts Group Sales Director 13 sluglinewww.trifast.comOUR GROUP BUSINESS MODEL We are a 24/7 ‘full service provider’ offering ‘end-to-end’ support to all our customers. Our success and ongoing growth is based on a unique mix of high quality manufacturing, sourcing know-how and adaptable, reliable global logistics N A N D APPL I C A G I S E D UNI T T R O P P O I E S FOR G R O W TH T I O N N A ITY, LO W COST M CTURING HIG H L A U Q U F A STI N G IN G R O W T H E V N I LOB A L LOGIS T I C G S CIN G O F COM P O R U O S N E N T S Read about Corporate governance on pages 64 to 65 Read the Business review on pages 32 to 41 What we offer At TR we pride ourselves on the end-to-end support that we offer to all customers. We don’t just sell industrial fastenings – we design, we problem-solve, we engineer, we manufacture, we source and we reliably deliver high quality, value adding components and logistical solutions to production lines across the world. TR is a recognised and established global brand across a wide range of manufacturing sectors. We differentiate ourselves in the market by offering a unique blend of high quality manufacturing with sophisticated supply chain distribution and logistics. 14 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Strategic Report So how do we do it? Design & application Global logistics A large proportion of our sales are driven by customer specific assembly components, including our unique product introductions within the automotive, electronics and domestic appliances sectors. Our engineering teams, through their strong relationships with our customers’ R&D departments, look to get involved from the start of the enquiry process, helping our multinational OEM customers to make the right fastener design decisions before full scale production begins. Our technically skilled engineers can deliver cost savings to the customer through specific component design or process applications, adding value and generating efficiencies throughout the supply relationship by working with our customers to reduce product volume, assembly time or weight. In turn, these savings help us to manage price discounting demands, win customer loyalty and further enhance our reputation for adding value. High quality, low cost manufacturing Our eight manufacturing plants spread across Asia, Europe and the UK allow us to provide reliable, timely and high quality product to our key multinational OEMs around the world. Our experienced manufacturing teams are able to work directly with our customers to rapidly design, produce and develop product samples, whilst on an ongoing basis, our factories are regularly audited, giving our customers complete confidence in the continuing quality of our supply. ‘Just in Time’ supply chains and advancements in robotic assembly have driven expectations and demand for zero defect components. By self- manufacturing we are better able to invest to meet these challenging and changing demands. Sourcing of components Two-thirds of the Group’s revenue is sourced from our established network of world class external suppliers. This means we are not restricted by what we can manufacture in-house, instead we are able to offer our customers a truly ‘one-stop’ solution for all their fasteners and related components. In a rapidly changing world, at both the micro and macroeconomic level, our established high quality supplier network, in conjunction with our in-house manufacturing capacity, means we can respond to both our customers’ urgent supply situations and longer term market changes with equal success. We have been a global supplier of fasteners and related components for over 40 years. Over that time we have established secure and proven logistic networks across the world. We now offer seamless and reliable supply to over 60 countries. From complex VMI and ‘Just-in-Time’ delivery to straightforward ex-works solutions, we are able to provide the most cost effective supply logistics to suit our multinational OEMs’ needs. With our core facilities in Asia, North America and Europe mirroring the global spread of our customer base, we are able to meet the challenging geographical requirements of our customers. By offering logistic solutions from transportation, warehousing, distribution, through to production lines, we can give our customers a cost effective and efficient service. It is these extensive and flexible networks that help to drive our core organic growth strategy, allowing us to continue to increase our revenues, profits and penetration across our key multinational OEMs’ sites. Investing for growth Nothing stands still in this ever-changing world. In order to make the most of the opportunities for growth and to keep moving forward, we must continue to invest in our business, whether this is in our people, our manufacturing capabilities and quality or in finding the next successful acquisition. Ongoing capital expenditure in new manufacturing and inspection plant within our factories is almost routine, with significant investment currently underway at our Italian, Singaporean and Malaysian sites, whilst over the course of the last two years, we have also seen significant investment in our people, not just via recruitment, but also through training programmes and succession planning. Opportunities for growth The strong relationships we have built with our key global multinational OEMs over the last 40+ years are considered a significant asset to the Group. We continue to prioritise the development, protection and maintenance of these relationships so as to grow market share across the world. It’s not just about existing relationships, we are also always looking at how we can gain access to new customers. At any point in time we will be working on a number of new multinational OEMs – building networks and trust, developing a better understanding of their needs and spotting the opportunities that will provide us with that initial route to supply. As a wider business, we are also constantly looking beyond specific customer relationships. Our engineering, sales, marketing and innovation teams are continuously tasked with searching the market to identify the next big thing. Be it a specific product range, patented technology, a new market focus or a geographical hot spot, we are always working together to drive our ongoing growth. www.trifast.com 15 sluglineOUR PRODUCTS ENCLOSURE PRODUCTS Enhancing the range of product that we can supply to existing customers, and attracting new customers, is a key part of the sales strategy. TR is already an acknowledged leader in the field of supply to sheet metal and enclosure manufacturers. To complement the extensive range of self-clinch fastenings, blind rivets and rivet nuts, rivet bushes and thread forming screws, we have extended our range and now design and supply locking systems and locks, hinges and latches, clamps and terminals, gaskets and accessories. To launch this range we conducted market research, assessed the competition, discussed with our customer base their specific needs and then developed a full marketing plan. This has been the most significant product introduction since our plastics commodity launch. A training program was created and, with the support and imagination of our in-house marketing team, we produced our own animation describing the end-2-end process and the key characters involved. We had a lot of fun doing this and it captured the imagination of the sales, sourcing and procurement teams internally. The range was launched on our website in November 2016 with over 2,500 parts, increasing the number of products on the website to 50,000. We created in-house a unique product configurator to enable engineers to design their own locks, and the capability of downloading the generated parts as a drawing. This has increased the traffic to our website substantially, and has attracted new customers and opportunities, many of whom have said our website has been easy to navigate and with the detail to hand that they require. The range is constantly growing as we meet customers’ demands and service interest from other industry sectors. Industries serviced: Energy Transport Technology General industrial & HVAC Glenda Roberts Martin Greenwood Abi Burnett Aleksandra Kuczynska Kevin de Stadler Ian Salmond Jeremy Schofield 16 Trifast plc Annual Report 2017 sluglineHOLDING THE WORLD TOGETHERStrategic Report TR SWEDEN TR NORWAY Sponsors stylish Swedish-designed Sidebuddy, the new eco-solution for city transportation Space odyssey: Supplying fasteners for the new Mars rover As our cities become increasingly congested with traffic and pollution, bicycles are proving an increasingly popular way to get around town more quickly and easily and with the added benefit of zero emissions. However, sometimes cycling may not be practical, if you have to transport children, pets or shopping for example. Swedish designer Jordi Hans saw an opportunity to invent a versatile add-on solution – the SideBuddy side trailer. Inspired by the classic designs of motorbike sidecars, the SideBuddy can be attached to either standard bicycles or new electric models and fits up to three children (aged 0–7 years) or cargo up to 120kg. Multi-functional and versatile, it is ideal for families, street sellers, tourists, commuters and even surfers! Always keen to support new and innovative ideas, when TR Fastenings, Sweden were approached by the designers of SideBuddy to be a possible sponsor, they were keen to hear more. “As a leading manufacturer and supplier of industrial components, environmental thinking is an area we are particularly interested in. In our opinion, the Sidebuddy is a unique project with huge commercial potential and one we are delighted to support. The components that were selected, such as screws, nuts, washers, springs and rubber parts, were already approved and validated for use in the automotive sector and readily available for us to supply to the customer. This amounted to a huge saving in terms of time for the Sidebuddy team.” Eugen Kuhnl Engineering and R&D Manager TR Sweden TR Fastenings Norway, is pleased to have been asked to supply essential rivets and tools for a Radar Imager for the new NASA Mars Exploration Rover which launches in 2020. This is the first time components TR have supplied have gone into space, and it is exciting to be a small part of future history. The Norwegian Defence Research Establishment (FFI) which is designing and developing the Radar Imager on behalf of NASA, required components which were robust enough to withstand the extreme conditions of the atmosphere on Mars, where temperatures can plummet to minus 125 degrees centigrade. Drawing on its experience of working within the telecommunications and energy sector, TR Fastenings Norway was able to tap into the company’s global network of suppliers and deliver the components to FFI within the required timeframe. The Radar Imager will be used in Mars subsurface experiment, known as RIMFAX. It will add a new dimension to the Rover’s toolset by providing the capability to image the shallow subsurface beneath the Rover in unprecedented detail. It will explore the ancient habitability of its field area and select a set of promising samples that will eventually be returned to Earth. “We are extremely proud to be involved in the development of this new Mars Exploration Rover. It is incredible to think that our fasteners will be used in outer space and is a testament to the high regard our products have with such a prestigious customer as FFI.” Jan-Erik Storsve General Manager TR Norway Sean Cushen Kenneth Hultberg Keith Gibb Martin Elliott David Griffin Joe Haymes Sian Whitlock 17 sluglinewww.trifast.comGROUP STRATEGY CORE STRATEGY Market research indicates that total global demand for fasteners is set to continue to grow For TR this is further supported by expected global growth across all of our of key sectors: in automotive, domestic appliances and electronics. We therefore see the next few years as being a period of continued investment and growth. Using as a base the strong foundations we have built and the investments we have already made over the course of 2017, we will continue to make carefully targeted investments in the coming years, to ensure that we are best able to seize the opportunity to grow alongside our key global customers and markets for the long term. We are a value-add supplier of specialist component parts, with over 75% of our revenues being derived from customer specific, branded, or licensed products. We provide guaranteed quality and reliability of global supply (sometimes for hundreds of parts at a time), as well as the ability to solve complex and sometimes urgent manufacturing challenges for our customers. Because of this, we are able to avoid competing solely on price and therefore can retain and build on our business relationships for the longer term. Description Our core business is supplying high volume assembly multinational OEMs around the world with fastenings and related components. Our customers rely on us to deliver consistent quality, price and availability in order to supply automotive assemblies, white goods, mobile phone base stations, computer enclosures, cash dispensers and other equipment, in their often numerous sister plants spread globally. Over 46% of Group sales come from our 25 key multinational OEMs. We carry ‘preferred supplier’ status to these multinationals, several of which own more than 200 plants, making comparable or identical finished products. Our average percentage of total fastening spend with each of our multinational OEMs is less than 25% globally, so therefore, developing this pipeline, as well as building relationships with new multinational OEMs, is the backbone of our overall growth strategy. Performance so far We have trading relationships with over 100 multinational OEMs and currently assign strategic account status to 25 of these. These are made up of a mixture of household names and Tier 1 manufacturers across the automotive, domestic appliances and electronics sectors. We have been supplying 19 of these for over ten years, and four for over five. Plans for the future Maintaining and developing the strength of these relationships, as well as winning new multinational OEMs continues to be a key focus for the Group. We are investing in our sales teams around the world to help us do that. In part by increasing head count to expand our sector expertise and knowledge across different geographies and by ensuring that our sales teams work closer together on a global basis to continue to improve site penetration levels at our multinational OEMs. To make this possible, specific investments are being made into our global customer relationship management systems, and our internal key account management structure. Head count and skills gap analysis is already underway across all of our global and local sales and marketing teams. Specific key gaps have already been successfully filled and an ongoing investment programme will be put in place over the coming year to continue to develop and increase our skills in this area. In the medium term we see our revenue to our top multinational OEMs continuing to increase organically and for us to build meaningful trading relationships with at least another ten multinational OEMs over that same time period to be identified as key development accounts. 18 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Strategic pillar Investing in people KPI’s • Group total revenue • Key multinational OEM revenue • Return on capital employed (‘ROCE’) • Broaden skills of management • Group total revenue Investment driven growth • Return on capital employed (‘ROCE’) • Manufacturing to distribution ratio • Underlying cash conversion as a % of underlying EBITDA • Group total revenue Continue to add value and differentiate • Key multinational OEM revenue Acquisitions • Underlying operating margin enhancement • Group total revenue • Return on capital employed (‘ROCE’) • Underlying diluted earnings per share (‘EPS’) • Manufacturing to distribution ratio • Group total revenue Operational efficiencies • Underlying operating margins enhancement • Group underlying profit before tax • Underlying diluted earnings per share (‘EPS’) • Underlying cash conversion as a % of underlying EBITDA Link to Strategy in Action Read more on pages 21 to 22 Read more on page 23 Read more on page 24 Read more on pages 25 to 26 Read more on page 27 Read about KPI’s on pages 28 to 29 19 sluglinewww.trifast.comHOLDING THE WORLD TOGETHER STRATEGY IN ACTION sluglineStrategic Report INVESTING IN PEOPLE Our people continue to be the driving force of our business and their length of service, their loyalty, their enthusiasm and their skills and experience form the backbone of our success We understand how important it is to retain skills and to actively encourage and fairly reward our employees. Succession planning formed a major part of our activity in 2016 and will continue to be a focus for the coming years. We are very keen to provide development and promotion opportunities for our employees where possible, as well as experiences in areas of the business that they may not be familiar with. With this in mind we are looking to develop a programme of secondments, giving employees the opportunity to work in different locations. A full resource planning process was carried out within our UK operation during FY2017 allowing us to pull together the number of projects either underway or planned for the future. This process also allows us to manage and co-ordinate our employee activity, as well as being able to identify areas within the business where either additional resource or investment in skills is needed. Our training and development programmes have been enhanced within the last 12 months to ensure that we are able to provide the relevant skills to those that want to progress within the business. We continue to run our team leader training course, which provides the important training for those who are either about to start, or have just started a supervisory/line management role. We are continually reviewing the training provision to complement our competency framework and we are now enrolling more employees onto professional qualification courses including the Association of Accounting Technicians and the Chartered Institute of Procurement and Supply. “ We are very keen to provide development and promotion opportunities for our employees where possible, as well as experiences in areas of the business that they may not be familiar with” Following the success of the functional training for Health and Safety and the environment, where we brought together the representatives from each location in Europe and the USA for an update on developments and global policies and procedures, we will be developing similar training programmes for the different functions within the business that would benefit from such a global approach. Learning together has further improved communication between our operating sites. We have continued with our leadership programme, based on ‘Transactional Analysis’, a theory that allows participants in the programme to identify their own work drivers and to recognise those of others within their team. Through this recognition and understanding, leaders and managers are able to adapt their behaviour and communication styles to more easily interact with and better motivate their teams. A number of groups, including all of our European and USA heads of location, have attended this training, meaning that we now have a common language and understanding throughout the management level of the Group. Our performance management system is in the process of being enhanced, which will allow us to break down further the skills for each of the roles within the business, allowing us to quickly analyse training needs as well as being able to more easily identify high performers. The improved system will also enable managers and employees to interact more frequently in a framework that is more flexible. There are now even closer ties between all of our operating sites through the roll-out across the globe of the HR and IT strategies; these include global policies and procedures that have been implemented within all of our locations, allowing greater understanding and better and consistent application of global processes. 21 sluglinewww.trifast.comSTRATEGY IN ACTION Helen Toole HR Director Rebecca Rutter HR Representative Luke Murphy UK HR Manager Human resources strategy The implementation of the global HR strategy is underway. The strategy is entitled ‘Working together to manage growth’ and covers the following areas: • Recruitment and selection • Legal compliance • Performance management • Communication • Systems and technology • Health and safety • Environment • Payroll and benefits • Corporate social responsibility • Monitoring and measurement • Brand management A new corporate code of conduct is being developed for those policies and procedures that apply to all Trifast sites and employees. As far as is reasonably practicable, Group policies and processes will be implemented to improve our ability to monitor and measure employee activity and development. 22 UK APPRENTICESHIP PROGRAMME Our apprenticeship programme in the UK continues to be a great recruitment tool as well as a meaningful business training opportunity with apprentices joining many of our UK sites during the year. Apprentices that started with the Company during the year were: Nathan Blake Marketing Apprentice Uckfield Alex Hobden Business Apprentice Uckfield Ruth Eastwood Business Apprentice Uckfield Gagandeep Malhi Quality Administration Apprentice Birmingham Alex Pyle Warehouse Apprentice Newton Aycliffe Casey Scott Office Apprentice Newton Aycliffe Bethany Tomlinson Sales Office Apprentice Manchester Denhom Lewis Warehouse Apprentice Manchester sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017INVESTMENT DRIVEN GROWTH Description At TR we are in a sustained period of growth with FY2017 representing our seventh consecutive year of growth. Growth needs investment, not just in terms of our people, but also via capital expenditure in our warehousing, manufacturing capacity and our digital capabilities. By expanding our manufacturing capabilities and capacities around the world, we will not only reduce our reliance on purely distribution revenues, but we will also be able to improve our profit margins as revenues increase faster than the underlying semi-fixed cost bases we have in our manufacturing sites. Performance so far Over the last year we have invested around the world in our manufacturing. In our Italian site we have spent over £1m on a state- of-the-art heat treatment plant. This will allow us to bring significantly more of our heat treatment in-house, solving a manufacturing bottle- neck and also providing us with better quality assurance to support our growing on-site automotive production, having achieved TS16949 quality certification locally during the year. In PSEP Malaysia, we have made additional investments in our sorting and quality machinery in the year. This has allowed us to better access the automotive export market, particularly in Japan, where we have won a new contract with one of our key automotive multinational OEMs to supply into what is a new geographical market for us. Plans for the future Looking ahead, we continue to see capital investment as a core part of our ongoing strategy for growth. Specific plans have already been approved for an exciting new mezzanine extension within our well established and very profitable Singapore site. An initial investment of c.£1m will increase our local capacity by one third, allowing us to bring more manufacturing in-house for margin retention and quality assurance as well as to better cover fixed costs across the board as manufacturing levels increase. Outside of our manufacturing sites, we are also looking at investing in our distribution and warehousing facilities in both Belfast and Houston to support the growing revenues we are seeing in these regions. We anticipate both of these sites will move to bigger premises over the course of FY2018 to better support that ongoing growth. “ Looking ahead, we continue to see capital investment as a core part of our ongoing strategy for growth” Read about Operational efficiencies on page 27 Read about Cyber security on pages 48 and 49 23 sluglineStrategic ReportSTRATEGY IN ACTION CONTINUE TO ADD VALUE AND DIFFERENTIATE External recognition is also evident in the awards we have once again received during the year. Plans for the future Looking ahead we see investing in quality and engineering as an ongoing requirement, as the demands our customers place on us increase across all sectors of our business. We have a very strong foundation to work from, with plans already in place to continue to invest in and build our teams around the world. In the medium term, we are looking to further develop our in-house technical and engineering expertise. A team will be pulled together, and will be further supported by targeted capital investments to allow us to better showcase our capabilities externally to customers, as well as to act as a training and go to problem-solving resource to further widen our internal knowledge and expertise around the Group. Having already invested in our website and our cyber security in recent years, we are also in the process of reviewing our overall digital strategy and are expecting to make additional investment in this area over the next few years. Ongoing investment is expected in our external and investor website, our customer relationship and enquiry management capabilities as well as ongoing development and maintenance of our cyber security and global IT policies and procedures. Description Our application engineering teams help to differentiate us by bringing fastener solutions to our customers at all stages of the build, from initial design to ongoing manufacture, whilst continuous investment has helped to build and maintain our reputation for high quality within the industry at a time when customers are beginning to focus more and more on this. Our engineering knowledge and experience, supported by our high quality manufacturing locations, means we are able to add real value to our customers throughout the purchasing cycle. From initial enquiry and product development, through to ongoing supply management, we have the skills across the world to problem solve, and to drive efficiencies throughout the life of the build. Our reputation in the industry for quality is second to none. We are known for our commitment and ability to go the extra mile for our customers, solving issues before they arise and stepping in where competitors have fallen short. All of this commitment is supported by established supplier networks and valuable licences that mean we can offer a full range of quality product to meet our customers’ component requirements across a broad range of sectors. Performance so far Our application engineers have solved problems and created efficiencies for customers across all our sectors. We continuously undergo customer audits across our manufacturing and distribution locations. Over the last 12 months we have successfully passed our first Japanese automotive customer audit at our PSEP site in Malaysia, as well as an initial audit from a key new multinational OEM customer in America. In Taiwan, our latest customer audit result was 99.2% reflecting their well-deserved reputation for high quality, particularly within the Tier 1 automotive marketplace. 242424 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report ACQUISITIONS Description Trifast has shown it is capable of delivering a firm trend of healthy organic growth. However, this is not enough to maximise the opportunities available to us in what is a very fragmented industry, with no one player having more than 5% of the market share. The acquisition of TR Kuhlmann, although small, exemplifies what constitutes an ideal target for the business, namely knowledge and skills, capable self-managing and ongoing management teams, niche market positioning, growing revenue, profitability and earnings enhancing. Performance so far Kuhlmann has integrated very well in its first full year with the Group and their performance is ahead of expectations having generated “ A detailed acquisition strategy has been developed to identify key criteria and geographies, which is driving our proactive search for the next acquisitions” £6.0m of revenues, £1.3m of operating profit and £1.2m of the Group’s cash from operations. Whilst new business plans, taking advantage of Kuhlmann’s geography and the network of existing customers, have already been developed and are progressing well. Plans for the future Looking ahead for the medium term, a detailed acquisition strategy has been developed to identify key criteria and geographies, which is driving our proactive search for the next acquisition. To better aid this process, we have set up an internal acquisitions team to allow us to focus on not just finding that next acquisition opportunity, but also to help build up a pipeline of potential businesses that in time may come to fruition. This team, although based in Uckfield, is truly global, receiving input from all of our local Managing Directors and key people in the market place to aid our ongoing search in this very important market for us. Read about Investment driven growth on page 23 25 sluglinewww.trifast.comSTRATEGY IN ACTION ACQUISITIONS TR VIC’S VIEWS OF JOINING TRIFAST TR KUHLMANN’S VIEWS OF JOINING TRIFAST Since October 2015 we are a Trifast company – and this is great. We have got a lot of new impressions and new opportunities. One of the most impressive points is the support from the TR Family. Together, after only a few months of being with Trifast, we achieved the target to secure TR Kuhlmann as the first nomination from the automotive industry in Germany. This is just one example of how many great new wins TR could achieve in Germany in the near future. It was also fantastic to see that, from the first day, every employee in TR Kuhlmann was absolutely committed to Trifast, and for this, we would like to say a ‘big thank you’ to the Board. The Board spoke personally to every single employee and, as a result of those conversations, everyone understood that Trifast is one big strong family team. It is wonderful to see how strong the global structure inside the Company is. To work as one team globally in 18 countries, sharing the huge knowledge around the world is an amazing achievement. All these different parts to the puzzle make us very optimistic for the future. We are happy to say that we are proud to be a part of the Trifast family. Peter Henning Director TR Kuhlmann After the acquisition finalised on 30 May 2014, the next milestone was a management change on 1 June 2016 after an era of family managed business. With some resistance and doubts from the team, we started the journey towards a corporate structure and all its advantages. With a significant investment plan, unleashed human potential and willingness to change, the conversion wasn’t hard or painful. We have defined the objectives, united and focused on the target, and results are visible; stable growth, production cost reduction, increased capacity, new projects and more possibilities. The team effort resulted in the award of the ISO/TS16949 certification and many new automotive projects. In 2016 we were audited seven times, all with excellent scores. Cooperation with demanding automotive businesses is providing a great lesson to all of our team members along with the chance to have our products inside high end automotive manufacturing. Being part of Trifast gave us an opportunity to understand the organisation of other Group manufacturing sites and to adopt this at VIC. All of the changes have been implemented and has made VIC a better place to work. Constant change and continuous improvement has become our new philosophy. Nevertheless, we cannot forget all the heritage of the Perini family who laid a solid and strong foundation for the application innovation, finding not obvious but smart solutions for our customers and the curiosity to understand all the aspects of the fastener business. All this together gives us a right to see the future in bright colours where, with a great team, we can reach new goals. Karol Gregorczyk Sales and Development Director TR VIC 26 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017OPERATIONAL EFFICIENCIES Description As a Group, TR is committed to continuous improvement. We are always looking for ways to make our processes more efficient, whether that is by improving our manufacturing capacity and utilisation, working with our vendor base to manage costs, increasing our available warehousing space or improving our management and business information systems. We understand the importance of an efficient and effective cost structure, so as to best future proof the business and to support our strategy for growth. Performance so far Since 2010, our gross profit margins have increased by 666bps (AER), our underlying operating margins by 1,003bps (AER) and our overheads, as a percentage of sales at AER, have fallen from 23.5% in 2010 to 19.8% in 2017. In the last 12 months, we have specifically focused our efforts in a number of areas to achieve an improved underlying operating margin of 11.3% (2016: 10.4%). Manufacturing The investments we have made in our Italian manufacturing have successfully removed a key bottle-neck which was standing in the way of increasing capacity more widely at this site and, in the long term, will help improve efficiencies and maintain gross margins as in-house production levels increase. In PSEP, we have been working very successfully as a global team to ensure we make better use of their unique capability within the Group to manufacture very high quality safety critical automotive parts. Our global and local sales, sourcing and manufacturing teams have been working very closely together over the last 12 months to ensure that wherever relevant external opportunities are identified, we are making the right ‘make or buy’ decisions on a Group level. Our internal quoting times have been significantly shortened and the direct involvement of the PSEP team with end customers has helped us to win substantial additional business, most notably in Japan and America. Warehousing & sourcing In the UK we have introduced further ‘lean-lift’ technology to help reduce picking times and further improve efficiencies. In Italy, we have invested in automated packaging machines to increase efficiencies and reduce costs at this final stage of the production process. Over the second half of FY2017, we have started to see some pressure on import costs into the UK due to the protracted weakness in Sterling. This is not out of sync with the wider market, but we have been working hard at a Group and UK sourcing level to manage these pressures and also put in place appropriate mechanisms for dealing with this in the medium term. Plans for the future In terms of our manufacturing efficiency, in the medium term we expect to see ongoing efficiencies as a result of the investments made over the last 12 months in Malaysia and Italy, but the most exciting opportunity lies with our investment in Singapore. This is already one of our most profitable sites, which, as a result of the mezzanine expansion, will see capacity increase by one third, allowing an increased in-house margin. Outside of this, an increased integration within and between both the manufacturing and distributions sides of our business, is expected to help share best practise more widely and also help us to better leverage off our global supplier relationships. In terms of our wider management and business information systems, we are also in the process of looking at further investment opportunities that will allow us to generate information more efficiently, so as to reduce costs in the longer term. In the medium term this has been focused predominantly on our customer relationship management, human resources and Group level finance functions. 27 sluglinewww.trifast.comStrategic ReportKEY PERFORMANCE INDICATORS The Board and the Operational Management teams regularly monitor and develop a range of financial and non-financial Key Performance Indicators (KPIs) to allow them to measure performance against expected targets, which can be analysed under various categories The following represents a selection of these indicators: Financial KPIs Group total revenue Link to strategy Underlying operating margin enhancement Group underlying profit before tax Underlying Cash conversion as a % of underlying EBITDA Return on Capital Employed (‘ROCE’) Relevance and performance Our clear strategy for growth makes turnover an important barometer of the Group’s success. Turnover has grown significantly from 2013, increasing by 53.5% to £186.5m (2013: £121.5m), equating to 11.3% p.a. Growth is about more than just the top line. Controlling our cost base is a key part of our investment plans. Reflecting our success in this area, underlying operating margin has increased by 470bps, from 6.6% in 2013 to 11.3% in 2017. This represents margin growth since 2013 of 14.4% p.a. Underlying profit before tax is a key measure of the underlying performance of the business. Our underlying profit before tax has grown by over 180.8% (or 29.4% p.a.) since 2013. Our quality of earnings is reflected in our ability to consistently turn underlying EBITDA in to underlying cash. 2017 was strongly cash generative with a conversion rate of 97.3% (2013: 85.3%). 50.2% ROCE measures the return that we are able to provide to both our equity and debt investors. Maintaining this continues to be a key focus of the Group. Since 2013 our ROCE has grown by 13.3% p.a. to 19.9% (2013: 12.1%). Underlying diluted earnings per share (‘EPS’) EPS is a key target for the Group. Our clear strategy for growth is focused on increasing this ratio year-on-year. Since 2013 underlying diluted EPS has increased by 8.09p to 12.82p (2013: 4.73p). Key multinational OEM revenue Non-financial KPIs Broaden skills of management Manufacturing to distribution ratio 28 £86.0m of Group sales come from 25 key multinational OEMs. Working to grow this revenue as well as building relationships with new multinational OEMs is the backbone of our overall growth strategy. Link to strategy Relevance and performance Training programmes continue to be developed that allow our employees across the globe to learn together and share best practice. These programmes include operational, functional and leadership elements and are designed for our employees to enhance existing, and acquire, new skills. By expanding our manufacturing capabilities and capacities around the world, we will not only reduce our reliance on purely distribution revenues, but we will also be able to improve our profit margins as revenues increase faster than the underlying semi-fixed cost bases we have in our manufacturing sites. Historic performance Position on target? Over the last three years, 21% of UK employees have completed the management development programme. 2017 2016 2015 35% 34% 33% 65% 66% 67% Historic performance Position on target? 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 £16.0m £14.3m £186.5m £161.4m £154.7m 11.3% 10.4% 9.9% £20.5m 97.3% 88.9% 19.9% 18.5% 18.6% 12.82p 9.99p 8.68p £86.0m £75.4m £66.9m          sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Group total revenue Our clear strategy for growth makes turnover an important barometer of the Group’s success. our investment plans. 2013 of 14.4% p.a. business. Turnover has grown significantly from 2013, increasing by 53.5% to £186.5m (2013: £121.5m), equating to 11.3% p.a. Growth is about more than just the top line. Controlling our cost base is a key part of Reflecting our success in this area, underlying operating margin has increased by 470bps, from 6.6% in 2013 to 11.3% in 2017. This represents margin growth since Underlying profit before tax is a key measure of the underlying performance of the Our underlying profit before tax has grown by over 180.8% (or 29.4% p.a.) since 2013. Our quality of earnings is reflected in our ability to consistently turn underlying EBITDA in to underlying cash. 2017 was strongly cash generative with a conversion rate of 97.3% (2013: 85.3%). ROCE measures the return that we are able to provide to both our equity and debt investors. Maintaining this continues to be a key focus of the Group. Since 2013 our ROCE has grown by 13.3% p.a. to 19.9% (2013: 12.1%). Underlying diluted earnings per share (‘EPS’) EPS is a key target for the Group. Our clear strategy for growth is focused on increasing this ratio year-on-year. Since 2013 underlying diluted EPS has increased by 8.09p to 12.82p (2013: 4.73p). £86.0m of Group sales come from 25 key multinational OEMs. Working to grow this revenue as well as building relationships with new multinational OEMs is the backbone of our overall growth strategy. Underlying operating margin enhancement Group underlying profit before tax Underlying Cash conversion as a % of underlying EBITDA Return on Capital Employed (‘ROCE’) Key multinational OEM revenue Non-financial KPIs Broaden skills of management Manufacturing to distribution ratio Link to strategy Relevance and performance Historic performance Position on target? Key to Strategic Pillar icons 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 £186.5m £161.4m £154.7m £16.0m £14.3m 50.2% 11.3% 10.4% 9.9% £20.5m 97.3% 88.9% 19.9% 18.5% 18.6% 12.82p 9.99p 8.68p £86.0m £75.4m £66.9m        Acquisitions Continue to add value and differentiate Investing in people Investment driven growth Operational efficiencies Read about our Group Strategy on pages 18 and 19 Link to strategy Relevance and performance Training programmes continue to be developed that allow our employees across the globe to learn together and share best practice. These programmes include operational, functional and leadership elements and are designed for our employees to enhance existing, and acquire, new skills. By expanding our manufacturing capabilities and capacities around the world, we will not only reduce our reliance on purely distribution revenues, but we will also be able to improve our profit margins as revenues increase faster than the underlying semi-fixed cost bases we have in our manufacturing sites. Historic performance Over the last three years, 21% of UK employees have completed the management development programme. 2017 2016 2015 35% 34% 33% 65% 66% 67% Key Distribution Manufacturing Position on target?   29 sluglinewww.trifast.comOUR TIME AT TRIFAST Having qualified as an Accountant in 1994 with KPMG, I joined Trifast as the Group Accountant in 1999 and immediately I felt at home. I was joining an international organisation, which put quality and its people at the heart of everything it did. Within a month, I was involved in my first acquisition of what is now called TR Fastenings A.B. (Sweden). I was thrown in very much at the deep end and realised very quickly that Trifast is about empowering its employees and giving them the opportunity to succeed. As most decisions ultimately have a financial impact I have been very fortunate to be involved in key decisions within the business, which has enabled me to travel around the Group meeting and working with a lot of people, providing me with a deeper understanding commercially of the markets and sectors in which TR operate. I became Group Finance Controller and Company Secretary in 2004, which gave me a deeper knowledge of the legal system and corporate governance as well as giving me exposure to the strategic thinking of the PLC Board and our stakeholders. Following the financial crisis and global downturn in 2008/9, Trifast went through its toughest two years – the top team changed and Malcolm Diamond (Chairman) and Jim Barker (CEO) returned to the business. I became Group Finance Director and, along with Geoff Budd (Commercial Director and European Managing Director) and Glenda Roberts (Group Sales Director), we began turning around a £15m loss making company with a share price of 8.5p. It was not easy but, with loyal and resilient support from my colleagues and staff around the world, we were able to lay the foundations that gave TR the platform to once again grow its business and return to profitability. The Global sales team was reinvigorated and after a careful review of our acquisition strategy, we added three great companies namely, PSEP (2011, Malaysia), VIC (2014, Italy) and Kuhlmann (2015, Germany). Being heavily involved in all three transactions, I once again realised it was not just about financials but ensuring each business’ core values, culture and commercial desire fitted into the TR model. Our business is all about innovation, product development and delivering high quality customer service 24/7 across the organisation. Then on 1 October 2015, after an externally managed recruitment process, I was honoured to take up the mantle of CEO from Jim Barker. My CFO replacement, Clare Foster, had joined us in 2015 to take up the role as Group Financial Controller and Company Secretary and having known her for over 15 years whilst she worked at KPMG I recognised she knew our business and culture well and had the strategic thinking and financial experience to take up a more senior role within the organisation. Consequently, on 1 October 2015 Clare took over my role as CFO and fitted right in. I am also very privileged to work with a great Executive and Non- Executive team who, with a very talented operational team, bring years of knowledge, expertise, support and wisdom across the globe. Looking ahead, I am excited about our future and the opportunities we have. There is so much to go for in what is a large and growing fragmented market both at home and internationally. In all this, our core strategy remains the same; focused on being a full-service provider from value-add design and manufacture to global supply to our customers. To achieve this, I am aiming to bring the Group even closer together, investing further in staff and capex and as always looking out for that next acquisition to join the TR team. 30 Trifast plc Annual Report 2017 MARK BELTON Chief Executive OfficersluglineHOLDING THE WORLD TOGETHERI am something of a late comer to the TR party having only joined the business in January 2015. However, my history with the Group goes back far beyond that. I first met the TR team in September 1998 when, as a new Audit Assistant working for KPMG, I was assigned to the half year review and I went on to stay on the audit for the next decade, learning in the process an incredible amount about the Trifast business and the people within it. Trifast, from the moment I started on the audit, had me by the heart- strings. Here was a business that prided itself on quality and integrity and the way that it looked after and treated its people, customers and suppliers. All good things must come to an end and in the Spring of 2009, I somewhat reluctantly handed over my Senior Audit Manager role to another. I continued to stay in touch with Mark and to watch with interest the period of great adjustment and recovery that the Group was going through. In January 2015, having spent three very exciting years directing national strategic investment projects at KPMG, I got the opportunity to become Financial Controller and Company Secretary of this wonderful Group, that I had known for all of my professional life. As Mark moved up to CEO in October 2015, I was invited to join the Board and take on the role of CFO. The last two and a half years have been an incredible journey. As a Group, we are firmly out of recovery and into a period of investment driven growth and so I couldn’t have asked for a more exciting time to join. We have already seen seven years of continuous growth, supported by a strong balance sheet and superb cash generation and, looking ahead, the opportunities for investment driven growth, both organically and via acquisition, are significant, whilst our loyal investor and banking relationships continue to provide us with the fire power we need to seize opportunities. Internally, I am very lucky to be supported by an incredible team of people, not just at HQ in Uckfield, but also around the world. I recognise that it is only with their support that we have been able to continue to develop and improve the way in which we work, the strategic value that we add to the wider business and the level of cohesion that we have, not just as a finance team, but also across the different functions within our global business. Someone once told me ‘all roads lead to finance’, well my key aim is to make sure that road is a two-way street because, for me, the true value of an effective finance function will always be to help support and drive sustainable growth as much as it is to account for it accurately when it happens. Strategic Report 31 CLARE FOSTER Chief Financial Officersluglinewww.trifast.comBUSINESS REVIEW Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (‘Constant Exchange Rate’ or ‘CER’, see note 34 for definition and explanation of rates used) and, where we refer to ’underlying’ this is defined as being before separately disclosed items (see notes 2 and 34 for reconciliations to GAAP measures and relevance for these items being separately disclosed) OUR GROUP PERFORMANCE Revenue Gross Profit (GP) GP% Underlying operating profit (UOP) UOP% Operating profit (OP) OP% Underlying profit before tax Profit before tax Underlying diluted EPS Diluted EPS Underlying ROCE “ Another record breaking financial year with strong profitable growth across every region and continual improvements shown in our KPI’s” Gross margin 31.1% (2016: 29.7%) For the first time in our history we have ended the year with a gross margin in excess of 30% 12.82p (2016: 9.99p) Underlying diluted EPS at AER FY 2017 CER £172.6m £53.6m 31.1% £18.6m 10.8% £15.6m 9.0% £18.1m £15.1m 11.28p 8.97p FY 2017 AER £186.5m £58.0m 31.1% £21.0m 11.3% £17.9m 9.6% £20.5m £17.3m 12.82p 10.40p 19.9% FY 2016 £161.4m £48.0m 29.7% £16.8m 10.4% £13.9m 8.6% £16.0m £13.1m 9.99p 8.50p 18.5% Growth at CER 7.0% 11.7% +140bps 10.9% +40bps 12.5% +40bps 13.2% 15.4% 12.9% 5.5% Growth at AER 15.6% 20.9% +140bps 25.2% +90bps 28.8% +100bps 28.1% 32.6% 28.3% 22.4% +140bps Our performance across the business has delivered another record breaking financial year with strong trading results ahead of our expectations. Strong profitable top line growth has continued across every region, up by 7.0% at CER and leading to revenues of £186.5m at Actual Exchange Rate (‘AER’) for 2017. Our underlying businesses have performed well with foreign exchange tailwinds also having a positive impact. By far the biggest driver of our performance in 2017 has been organic growth (5.2%; 13.7% at AER), with the focus on our core strategy leading to sales increases to our 25 key multinational OEMs of 14.2% at AER. On the non-organic side, 2017 has seen the first full year of trading from our acquisition of TR Kuhlmann, successfully generating 1.8% (1.9% at AER) of revenue growth for the Group. The strongest measure of the Group’s success this year has been at the profit level. For the first time in our history we have ended the year with a gross margin in excess of 30%, representing the achievement of a long held ambition. Gross margin has increased by 140bps to 31.1% (at both AER and CER; 2016: 29.7%) and our gross profit is up by 11.7% to £53.6m (£58.0m at AER; 2016: £48.0m). Against this gross margin increase, our Group underlying operating margin has stayed more consistent at 10.8% (11.3% at AER; 2016: 10.4%), reflecting the ongoing investments for growth that we have been making around the Group in our sales and operational teams as well as our capital investment programmes. Despite this ongoing investment for future growth, our underlying operating profit has continued to grow strongly with a 10.9% increase at CER and 25.2% at AER. All of the above factors has helped to drive substantial growth in our underlying diluted EPS, up by 28.3% at AER to 12.82p (2016: 9.99p). 32 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Given the significant weakening of Sterling since June 2016, CER continues to be the best way of understanding the positive progress of our underlying business. The impact of AER on some of our key metrics is illustrated in the graph below: FX Effects Revenue £13.9m £172.6m Shareholders’ funds £6.3m £95.4m Normalised net debt † £0.5m £7.1m Underlying PBT* £2.4m £18.1m Underlying diluted EPS* 1.54p 11.28p * Before separately disclosed items which are shown in note 2 † Before outstanding NI and income tax on share options. See nebt debt section on page 36 for further details AER CER Dividend policy With our proven track record, a strong balance sheet and a confident strategy for growth, we remain committed to a progressive dividend policy. As a result the Directors are proposing, subject to shareholder approval, a final dividend of 2.50p per share. This together with the interim dividend of 1.00p (paid on 13 April 2017), brings the total for the year to 3.50p per share, an increase of 25.0% on the prior year (2016: 2.80p). The final dividend will be paid on 13 October 2017 to shareholders on the register at the close of business on 15 September 2017. The ordinary shares will become ex-dividend on 14 September 2017. The 2017 final proposed dividend means that over the last six years dividends have grown from 0.50p to 3.50p, equating to a compound annual growth rate (‘CAGR’) of 47.6%. At the same time, dividend cover has fallen, now representing a cover of 3.7x. For the medium term, we believe an appropriate level of cover will continue to be in the range of 35 to 45. As is always the case, the actual dividend each year will need to take in to account our ongoing strategy of investment driven growth, potential acquisitions and the working capital requirements of a growing business. Dividend progression Dividend cover 1 2017 2016 2015 2014 2013 2012 Interim Final 0.00p 0.50p 1.00p 1.50p 2.00p 2.50p 3.00p 3.50p 1. To be approved at the 2017 AGM 2017 3.7× 2016 3.6× 2015 4.1× 2014 4.3× 2013 5.9× 5.9×2012 7.5× 33 sluglinewww.trifast.comBUSINESS REVIEW Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (‘Constant Exchange Rate’ or ‘CER’, see note 34 for definition and explanation of rates used) and, where we refer to ’underlying’ this is defined as being before separately disclosed items (see notes 2 and 34 for reconciliations to GAAP measures and relevance for these items being separately disclosed) Share price – recovery to growth: The significant increase in our share price over the last five years illustrates Trifast’s successful recovery into growth. (compound annual growth rate: 38.7%) Share price (p) 220.00 170.00 120.00 70.00 20.00 Sept 11 Mar 12 Sept 12 Mar 13 Sept 13 Mar 14 Sept 14 Mar 15 Sept 15 Mar 16 Sept 16 Mar 17 Share price 31 March 2017: 214.3p (1 April 2016: 130.0p) Revenue This year’s key revenue message is one of consistent growth. In FY2017, all of our regions have experienced strong top line growth ranging from 4.6% in our UK businesses to 12.3% in the US (4.6% to 28.2% at AER). In Europe, our total growth has been 9.8%, made up of 4.6% of organic growth and 5.2% from acquisitions. This reflects a particularly strong HY1, specifically in our Italian domestic appliances business, and FY2017 gains in electronics in Hungary and automotive in Sweden. In Asia, we have seen a robust return to growth, with total sales (including intercompany) in the region growing by 6.5% to £47.8m (2016: 1.1% and £44.9m) following a strong HY2. Growth at entity level has been equally good, with Singapore continuing to perform well, up by 9.4% (25.2% at AER), in the domestic appliances market and Shanghai, up 9.8% (18.4% at AER), on the automotive side. Most notable is the successful return to growth in our PSEP, Malaysia business. A contraction in the local automotive market has reduced trading levels over recent years. However, in FY2016 we saw this bottom out and in FY2017 top line growth of 6.2% (16.1% at AER) has come from of a mix of both domestic and export sales. Revenue by region (CER)† 2017 £5.3m +12.3% 2016 £4.7m £47.8m +6.5% £69.3m +4.6% £44.9m £66.2m £172.6m +7.0% * £59.7m +9.8% £161.4m * £54.4m • UK • Europe • Asia • USA * After eliminating intercompany revenues † Regional revenues include intercompany. AER values can be found in note 3 of the financial statements “ This year’s key revenue message is one of consistent growth. In FY2017, all of our regions have experienced strong top line growth ranging from 4.6% in our UK businesses to 12.3% in the US (4.6% to 28.2% at AER)” 34 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Strategic Report Underlying operating profit and margin by region (CER)† 2017 £0.3m 5.3% 2016 £0.4m 8.5% £7.0m 14.6% £6.5m 9.4% £6.7m 15.0% £6.2m 9.3% * £18.6m 10.8% £8.5m 14.3% * £16.8m 10.4% £6.9m 12.7% • UK • Europe • Asia • USA * After deducting central costs † Before separately disclosed items which are shown in note 2 For our UK businesses, it has also been a year of good growth in what is a mature market. Overall total revenues are up 4.6% to £69.3m (2016: £66.2m), with the biggest increase being seen across our distribution businesses, 10.4% to £12.5m at AER, predominantly arising out of additional sales volumes to our European distributors. Outside of this, growth has largely come from increased sales to our multinational OEMs in the automotive sector. In the US, we continue to see very strong revenue growth of 12.3% to £5.3m (£6.0m at AER; 2016: £4.7m) again largely as a result of our ongoing multinational OEMs focus. Gross margin The Group’s gross margin has increased by 140bps (at both AER and CER) to 31.1% (2016: 29.7%). Outside of the US, gross margin improvements have been seen across all regions. This is most specifically within Europe, largely due to favourable cost variances and capacity increases at our Italian manufacturing site. In the UK, gross margins have increased by 100bps, largely due to transactional gains on our export revenues caused by positive movements in the Euro exchange rate. Whilst in Asia, a change in product mix and capacity increases at our Singapore and Malaysian sites has had a similar margin impact. In the US gross margins have fallen by 410bps as the result of product mix changes and an increased focus on the automotive sector. Underlying operating margin Underlying operating margins have increased by 40bps to 10.8% (11.3% at AER; 2016: 10.4%). The biggest increase is in Europe of 160bps (180bps at AER), largely as the result of the increase in gross margin noted above. In Asia, margins have fallen by 40bps to 14.6% (14.9% at AER; 2016: 15.0%) partly as the result of a foreign exchange balance sheet translation loss of £0.2m (2016: gain of £0.2m) due to the ongoing weakness in the Euro and Sterling as well as additional investments to support ongoing growth in the region. In the UK, margins have remained broadly stable at 9.4% (2016: 9.3%), whereas in the US we have seen the drop in gross margin feeding down into a similar fall at the underlying operating profit level. As sales continue to build, we expect underlying operating profits in this region to improve as planned investments for growth can be better absorbed. Net financing costs (at AER) Interest costs have continued to fall to £0.5m (2016: £0.8m) reflecting both a decrease in the average net debt balance to £12.2m (2016: £16.6m) and a reduction in the interest margin charged following an amendment of our HSBC banking facilities on the 7 October 2016. “ The Group’s gross margin has increased by 140bps to 31.1% (2016: 29.7%). Outside of the US, gross margin improvements have been seen across all regions” www.trifast.com 35 sluglineBUSINESS REVIEW Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (‘Constant Exchange Rate’ or ‘CER’, see note 34 for definition and explanation of rates used) and, where we refer to ’underlying’ this is defined as being before separately disclosed items (see notes 2 and 34 for reconciliations to GAAP measures and relevance for these items being separately disclosed) “ Our net debt position has significantly decreased by £9.6m to £6.4m (2016: £16.0m). One of the key reasons driving that reduction is our very strong cash generation” Taxation (at AER) The Underlying Effective Tax Rate (‘UETR’) has reduced slightly in the year to 23.6% (2016: 24.9%) largely as a result of an increase in the tax deductibility of certain permanent staff costs in Italy. Subject to future tax changes and excluding prior year adjustments, our UETR is expected to be c.25% going forward. Net debt (at AER) Our net debt position has significantly decreased by £9.6m to £6.4m (2016: £16.0m). One of the key reasons driving that reduction is our very strong cash generation. In FY2017 our underlying EBITDA to underlying operating cash conversion rate was 97.3% (2016: 88.9%, 102.7% net of the de-factoring in VIC). This led to an operating cash inflow of £22.5m, and despite our significant increase in trading (15.6% and £25.1m at AER), a working capital increase of only £0.8m reflecting our continued high focus on working capital levels around the Group. Our normalised net debt position at 31 March 2017 is higher at £7.6m. This adjustment reduces our cash holding at year end to take into account the £1.2m of cash specifically held to settle the NI and income tax payments (due in April 2017) relating to Malcolm Diamond’s exercise of 1,000,000 share options on 17 February 2017. Further information is included in the Directors’ Remuneration Report regarding this transaction and Malcolm’s shareholding. Banking facilities The Group finalised amended banking facilities with HSBC on 7 October 2016. In summary, the amendments reduce the Group’s reliance on the asset backed lending facilities, decrease the overall cost structure and extend the maturity profile of a proportion of our borrowings to better reflect the Group’s core funding and investment requirements. Taking these changes into account, headroom has increased by c.£5.0m, helping to support our strategy of investment driven growth. In addition, an accordion facility of £20.0m has been written into the agreement, providing the potential flexibility to debt finance future acquisitions and investments. Return on Capital Employed (at AER) As at 31 March 2017, the Group’s shareholders’ equity had increased significantly to £101.7m (2016: £83.8m). This £17.9m movement is made up of retained earnings of £11.3m, share issues totalling £0.3m and a substantial foreign exchange reserve gain of £6.3m which arose due to the sustained weakening in Sterling in the financial year. Over this increased asset base, our very strong trading performance has led to a higher underlying ROCE of 19.9% (2016: 18.5%). Net debt bridge (AER) 16.0m 1.5m 22.5m £20.0m £17.5m £15.0m £12.5m £10.0m £7.5m £5.0m £2.5m 0.0 -£2.5m -£5.0m -£7.5m t b e d t e N h s a c t e N 3.0m 7.6m 1.2m 6.4m 6.0m 2.8m 0.8m Net debt 31 March 2016 Deferred consideration Operating cash inﬂow before changes in working capital Working capital changes* Net capital expenditure Interest, tax and foreign exchange Dividends less proceeds from share issues Normalised net debt 31 March 2017 Outstanding NI and income tax on share options Net debt 31 March 2017 * Before outstanding NI and income tax on share options. 36 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Looking ahead Group outlook Looking ahead, the global fastenings market is forecast to grow by 5% a year over the next five years, with all our regions predicting growth. Geographically Europe, Asia and USA all remain key focus areas for us both organically and non-organically and with our new Spanish greenfield site now up and running, we are in a prime position to continue to develop that important market in the future. The current financial year has started well and, with a robust pipeline in place, there is no indication this will change. The additional investments we are making in our people across the world, including into our global and local sales teams, mean the Group is in a good position to move forward. Moreover, the strategic investments we are making in our global Customer Relationship Management (‘CRM’) systems and our key account management have been specifically targeted to further support our core strategy of focusing on our multinational OEMs. In manufacturing, our capital expenditure plans will increase capacity at both our Italian and Singaporean sites so as to reduce our per part production costs, and allow us to retain higher profits per sale by bringing more manufacturing in-house in the future. To complement these strong underlying growth plans, further acquisitions remain an important strategic growth pillar for the Group. Our acquisition strategy has been developed to identify key criteria and geographies and we will continue to use this to drive our proactive search for the next successful acquisition. There are, of course, some macroeconomic factors we cannot fully mitigate, including movements in foreign currency and the ongoing volatility in the raw materials markets, as well as the wider potential implications of Brexit on our business and the UK economy. We are already starting to see some purchase price challenges arising out of both the ongoing weakness in Sterling and the relative strength of the US Dollar, which we expect to increase over time if circumstances persist. However, taking the Group as a whole, with our geographical diversity, our balanced sector mix and our clear strategies for growth, we remain optimistic about the Group’s prospects. 37 sluglinewww.trifast.comStrategic ReportBUSINESS REVIEW Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (‘Constant Exchange Rate’ or ‘CER’, see note 34 for definition and explanation of rates used) and, where we refer to ’underlying’ this is defined as being before separately disclosed items (see notes 2 and 34 for reconciliations to GAAP measures and relevance for these items being separately disclosed) UK – 39% of Group revenues Revenue by sector 19% 5% 32% 30% 14% • Automotive • Electronics • Other • Domestic appliances • Distributors Revenue† £69.5m £69.0m £68.5m £68.0m £67.5m £67.0m £66.5m £66.0m £65.5m £65.0m £64.5m 2017 2016 † Including intercompany revenues Underlying operating profit £6.8m £6.6m £6.4m £6.2m £6.0m £5.8m £5.6m £5.4m £5.2m £5.0m 38 2017 2016 Dave Fisk TR UK Managing Director Sam Wilson Lancaster Fastener Managing Director This year has seen a strong return to growth for the UK region, with total revenues growing by 4.6% largely across our distributor and automotive sectors Regional performance The region overall delivered a stronger than expected sales performance. For our TR Fastenings UK business, the Midlands, Uckfield, Scotland and the North East locations all got off to a solid start in the first quarter as customer demand increased in the automotive, general industrial, aerospace and defence sectors. Looking ahead Following the appointment and induction of Kevin de Stadler, Director of TR Sales for UK and Ireland, the implementation of the new TR UK sales strategy has begun. A great deal of work has already been carried out within the business with the key stakeholders to ensure that we are well positioned to capitalise on the future opportunities this will provide. Following quieter trading mid-year, the UK returned to a growth position for year end, with excellent results achieved across the sites in the last quarter. Manchester delivered impressive growth compared to its prior year position. Belfast delivered a steadier FY2017 following a couple of years of rapid growth and are now in the process of reviewing options for additional space. Product based European distributor sales have exceeded expectations, both within TR Fastenings and Lancaster Fastener. In fact the latter have had their best year ever, growing by 16.2% to £5.7m (2016: £4.9m). Automotive contributes 32.2% of UK sales. Although still growing, we experienced some delays with one of the major OEMs revising forecasts for two production builds, which resulted in a two-to-three month reduction against the original forecast. The electronics sectors saw a slight decline this year, but still accounts for 14.3% of UK sales, while other sectors have remained flat. Gross margins were positively impacted by 100bps due to transaction gains on our € sales, as well as a broadening of our product mix. Our underlying operating profit margin has remained consistent at 9.4% (2016: 9.3%) reflecting the ongoing investments for growth we are making. We are actively recruiting, to increase sales resource into all locations in the UK. Through the recent successes of developing and expanding the TR product ranges, we have dedicated new resource to assist the sales teams and locations with the plastics and enclosure product ranges, and have also supplemented the commercial team to assist with the increased demand in sourcing, supply chain development and new product introduction. Towards the end of the year, we had already started to see some pricing increase requests being made from suppliers. Looking ahead, we recognise that these inflationary pressures will continue to rise if the current Sterling weakness persists. We are already working hard to manage this risk, but as a business we expect this could lead to a temporary depression of our UK gross margin in FY2018. Currently the UK economy is continuing to grow, albeit more slowly, despite the wider uncertainty that exists as a result of the EU referendum in June 2016. We will continue to monitor the situation closely over the coming months to ensure we are able to react quickly and appropriately to any changes in circumstances. However, as only one part of an international business, we are confident that the UK, in conjunction with the strength of the wider Group, will have the flexibility to successfully manage and adapt to any challenges and opportunities as they arise. sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Strategic Report EUROPE – 34% of Group revenues 29% 12% Revenue by sector 1% 41% 17% • Automotive • Electronics • Other • Domestic appliances • Distributors Revenue† £80.0m £70.0m £60.0m £50.0m £40.0m £30.0m £20.0m £10.0m £0.0m 2017 2017 2016 † Including intercompany revenues Underlying operating profit £11.0m £10.0m £9.0m £8.0m £7.0m £6.0m £5.0m • CER • AER 2017 2017 2016 Geoff Budd Commercial Director and European Managing Director This has been a year of impressive sales and profit growth across Europe, with good progress made in all our key locations Regional performance Revenue growth across the region has been very strong at 9.8% to £59.7m (£67.8m at AER; 2016: £54.4m). This in part reflects the ongoing success story that is TR Kuhlmann, Germany, where a first full year of trading in the Group has driven non- organic regional revenue growth up by 5.2%. On the organic side, growth has been spread across a number of our European entities, but most specifically in Sweden in the automotive sector and in Hungary in Electronics. During the year, we successfully established a greenfield site in Barcelona to serve existing and known customers, primarily in the tiered automotive sector. By the end of FY2017, TR España was fully operational with first invoicing taking place in April 2017. Underlying operating margins have also continued to improve, up 160bps to 14.3% (14.5% at AER; 2016: 12.7%). The largest driver of this increase is in Italy where HY1 saw favourable cost variances for both raw material and finished goods. Whilst purchase price inflation in HY2 had eroded some of these gains by year end, we expect our ongoing investments in capacity (discussed below) to help mitigate some of this impact going forward. Looking ahead Over the course of FY2017 VIC has received significant capital expenditure of £1.7m for production equipment, heat treatment plant, quality inspection equipment, a complex automated packing machine and sophisticated zero-defect checking machines. This strategic investment plan will continue to roll out into FY2018, albeit at a lower level, to drive production volumes and efficiencies going forward. Whilst achieving TS16949 accreditation in 2016 has opened up opportunities to grow our European automotive manufacturing in the future. We continue to see Europe as a key growth market for the Group across not just automotive, but also the domestic appliances and electronics sectors. The recent establishment of TR España and the acquisition of TR Kuhlmann have provided us with a good foothold in two of the region’s key geographies from which we can grow. Whilst on the non-organic side, we will carry on with our proactive search for our next successful acquisition. 39 sluglinewww.trifast.comBUSINESS REVIEW Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (‘Constant Exchange Rate’ or ‘CER’, see note 34 for definition and explanation of rates used) and, where we refer to ’underlying’ this is defined as being before separately disclosed items (see notes 2 and 34 for reconciliations to GAAP measures and relevance for these items being separately disclosed) USA – 3% of Group revenues Revenue by sector 9% 9% 26% Gary Badzioch TR Fastenings Inc. Managing Director The 2017 financial year for TR USA has turned out as expected, with us comfortably hitting our double digit target revenue increase at 12.3% (28.2% at AER), and bringing our CAGR to 17.5% since 2013 Regional performance Such strong and consistent revenue growth is a good reflection of the ongoing successful roll out of management’s growth plans for the region. Equally in line with those growth plans, we have seen a temporary fall in underlying operating margin to 5.3% (5.6% at AER; 2016: 8.5%) in the region, as we have used some of the profit for the year as investment to solidify the team for the future. Doing so has continued to strengthen our core team, giving TR USA the flexibility to be more aggressive on growth for the future in both the automotive and electronics market segments. Our primary growth pattern for the year was in the automotive sector, which we expect will continue to provide fuel for the fire for our future growth. In fact, it was in the automotive sector that we achieved another new milestone. With the support of TR globally, particularly with our Asian manufacturing sites, TR USA was able to add a new key automotive multinational OEM relationship to the Group. This was an important step in the evolution of TR USA, and evidence that we now have enough experience to be a major contributor to the larger organisation. Looking ahead There are several exciting geographical markets in the USA presenting opportunities for growth. We intend to exploit such opportunities going forward not only to drive growth, but also to ensure we keep a balanced portfolio of both domestic and export business in the current political environment. On top of that, TR USA will begin to test out new product segments, such as plastics, to strengthen our portfolio for the future. The plastics product range has already been very successfully developed by TR in Europe, and we hope to mirror its success in the USA. With our stronger team, we will also bring back a focus on what got TR USA originally started, the electronics sector. By combining these new approaches, while continuing the core strategy of growing our automotive business in both the USA and Mexico, we hope to cement our ability to continue growth at a double digit rate for the foreseeable future. 56% • Automotive • Electronics • Other • Domestic appliances • Distributors Revenue† £7.0m £6.0m £5.0m £4.0m £3.0m £2.0m £1.0m £0.0m 2017 2017 2016 † Including intercompany revenues Underlying operating profit £0.5m £0.4m £0.3m £0.2m £0.1m £0.0m • CER • AER 40 2017 2017 2016 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report ASIA – 24% of Group revenues Revenue by sector 8% 33% 24% 8% 27% • Automotive • Electronics • Other • Domestic appliances • Distributors Revenue† £56.0m £54.0m £52.0m £50.0m £48.0m £46.0m £44.0m £42.0m £40.0m 2017 2017 2016 † Including intercompany revenues Underlying operating profit £8.5m £8.0m £7.5m £7.0m £6.5m £6.0m £5.5m £5.0m • CER • AER 2017 2017 2016 Charlie Foo TR Asia Managing Director FY2017 was another great year for Asia. After a slow start in HY1, Asia achieved strong year on year revenue growth at CER of 6.5% to £47.8m (£53.8m at AER; 2016: £44.9m) Regional performance Underlying the region’s growth were very strong performances from both our Singapore and Shanghai entities, recording CER increases of 9.4% and 9.8% respectively. Singapore continues to perform very well in the electronics sector, although it is in domestic appliances where we have continued to see the highest growth. In contrast, Shanghai’s growth has been largely automotive driven as start of production dates kicked in on a number of our key multinational OEM contracts. In PSEP, we saw a welcome return to growth of 6.2% (16.1% at AER), predominantly as the result of growing export sales. This turnaround represents the first stage of success for the export-led strategy that we put in place in FY2016 to counter weaknesses in the domestic automotive market. In addition, during the year, our PSEP factory was successfully audited by one of our key multinational OEMs operating in Japan, achieving a high score of 95 points. This excellent result has opened up more opportunities for PSEP to supply to our multinational OEM customers and to continue to support the Group’s growth into conventionally difficult markets such as Japan. Although growth in SFE was more muted at 2.2% (17.8% at AER), largely due to capacity constraints, this was still secured from various automotive multinational OEMs across Europe and USA. Our Taiwanese entity’s focus continues to be on their strong commitment to quality, delivery and competitive cost. Looking ahead We see a bright future for our Asia region, in part due to the specific strategic investments detailed below. But also, further supported by the strong macroeconomic environment, with growth for the ASEAN region as a whole forecast to be c.4.3% over the next five years. (source: The Economist, Intelligence unit) TR Formac Singapore will be the location for one of our main strategic capital investments in FY2018. Specific plans have been approved for a new mezzanine extension. An initial phase one investment costing c.£1m will increase capacity by one third and allow us to self-manufacture a greater proportion of product, both retaining and improving margins as fixed costs can be better covered. At TR Formac Shanghai, the ongoing development of the automotive division in China has already started showing encouraging signs of growth. And over the course of FY2018, Shanghai is planning to expand further into Japan. With the addition of a full-time Japanese representative, appointed in April 2017, we will be better able to serve the growing multinational OEM customer base we have there. Supporting these increased automotive sales, PSEP will be manufacturing the majority of parts, on the c. £1.0m ‘6 Dies 6 Blows Cold Former’ machine we purchased in FY2016. Looking ahead, our investment in this machine is helping to drive growth beyond Japan, by supporting several new development projects awarded by a number of our key automotive multinational OEMs across China and the USA. Looking beyond organic growth, Asia also remains a region of great interest to us for potential non- organic investment. As a result, at both a Group and local level, we will continue to proactively and reactively identify and review acquisition opportunities as they arise. 41 sluglinewww.trifast.comCORPORATE SOCIAL RESPONSIBILITY Health and Safety As ever, Trifast remains committed to ensuring the health, safety and welfare of its employees and those involved in sub-contract activities. Health and Safety responsibilities and authorities at all levels of the organisation are clearly defined, and communicated via the intranet based Health and Safety management system. The organisation is supported in its Health and Safety best practice by the Health, Safety & Environmental Manager, EHS Coordinator and Compliance Coordinator alongside appointed EHS representatives, manual handling Instructors, fire wardens and first aiders in each of our business units. Our non-conformance and risk action trackers remain in place and have been improved for increased accuracy in reporting, timely closure rates and meaningful results trending. Annual legal compliance audits, management reviews and representatives meetings continue to be carried out, creating the base framework for accreditation to ISO45001 (Health and Safety Management Systems) which is now expected to be released as a final draft by the International Standards Organisation in late 2017. It is still the intention of the company to gain accreditation to this standard as soon as is reasonably practicable following its release. In January 2017 we achieved our target of ‘A reportable accident free period of one million working hours’. We promote a positive Health and Safety culture throughout our business units, and welcome comments and suggestions from all employees on Health and Safety best practice. We have provided Health and Safety Comments boxes to allow suggestions to be made openly or anonymously at the employee’s discretion – this has been seen to have a positive impact on the continual improvement of the management system, as some of the suggestions made have led to business process enhancements. Environment Best environmental practice and the impacts that our operations have on the environment are of great importance to Trifast. We have previously held ISO14001:2004 in many of our business units, in December 2016 we successfully passed our Group level ISO14001:2015 (Environmental Management Systems) audit with a 100% score from the British Standards Institute. This success was achieved after a one year implementation project carried out by the EHS Manager, EHS Coordinator and the divisional EHS representatives. The Environmental Management System is communicated and implemented throughout the business through strong leadership and support from the top management. It is the intention of the management system that it will assess and control the impacts of the businesses activities, products and services – it will also serve to implement the Environmental Policy throughout. EUROPE DISTRIBUTION 1,095 tonnes (2016: 1,101 tonnes) 2.65 per FTE 0.042 per SQM EUROPE MANUFACTURING 2,556 tonnes (2016: 2,476 tonnes) 19.22 per FTE 0.069 per SQM TOTAL MANUFACTURING 6,057 tonnes (2016: 5,783 tonnes) 15.48 per FTE 0.124 per SQM TOTAL DISTRIBUTION 1,778 tonnes (2016: 1,696 tonnes) 3.19 per FTE 0.053 per SQM Trifast plc 7,835 (2016: 7,479) 8.22 per FTE 0.095 per SQM ASIA MANUFACTURING 3,501 tonnes (2016: 3,307 tonnes) 13.57 per FTE 0.299 per SQM USA DISTRIBUTION 35 tonnes (2016: 34 tonnes) 3.18 per FTE 0.035 per SQM ASIA DISTRIBUTION 648 tonnes (2016: 561 tonnes) 4.72 per FTE 0.100 per SQM • Our manufacturing facility in Italy, has had a notable increase of 158.6 tonnes of CO2e due to the operation of 6 new manufacturing machines • 2016 Asia manufacturing figures have been restated due to a data reporting error re our Taiwan facility in the previous financial year • We have used emission factors from www.gov.uk “Conversion factors 2015 – Condensed set” 42 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Jenni Morland European Health, Safety and Environmental Manager Kelly Bennett Environmental Health and Safety Co-ordinator Tracey Nixon-Mordica Compliance Co-ordinator Trifast commits to: • Minimise energy consumption per full time equivalent (FTE) and square metre as is reasonably practicable • Prevent pollution as far as is reasonably practicable • Reduce the production of waste and develop effective waste management and recycling procedures, as well as disposing of unavoidable waste in such a way as to minimise its environmental impact • Minimise emissions when defined as having a significant impact Date period for reporting Total scope 1 Purchased fuels* Company vehicle use* Total scope 2 Purchased electricity* Total GHG emission for Trifast 01/04/2016 – 31/03/2017 1,710 tonnes CO2e 1,190 tonnes CO2e 520 tonnes CO2e 6,125 tonnes CO2e 6,125 tonnes CO2e 01/04/2015 – 31/03/2016 1,702 tonnes CO2e - - 5,777 tonnes CO2e - 7,835 tonnes CO2e 7,479 tonnes CO2e • Periodically review its environmental arrangements and performance against objectives to ensure that it remains relevant and appropriate • Encourage awareness of internal and external environmental issues, and this Environmental Policy * New disclosure requirement for this financial year Figures are reported in tonnes of CO2e (carbon dioxide equivalent) Reports are calculated in the following ways: • Reduce, control and where applicable prevent the use of restricted • Tonnes of CO2e substances • Conduct its activities in full knowledge of, and compliance with, the requirements of applicable environmental legislation, Approved Codes of Practice and other environmental requirements agreed by top management Trifast has established environmental objectives and targets through Group management reviews, and is measuring performance against these targets utilising an agreed framework. Carbon footprint 2016–2017 Our emissions data includes all material emissions of the six Kyoto gases from direct sources, and from purchased electricity, heat, steam and cooling where applicable. No direct source material emissions have been omitted. • Tonnes of CO2e per FTE (Full Time Equivalent) • Tonnes of CO2e per SQM (Square Metres of floor space occupied by the Company) Modern slavery Since the introduction of the Modern Slavery Act 2015, the Trifast Board has prepared a slavery and human trafficking statement which will be reviewed each financial year. The statement shows the steps taken to ensure that slavery or human trafficking is not taking place in our own business or in our supply chain. The statement is available on our website, http://www.trifast. com/governance/modern-slavery-policy-statement-2016 BUSINESS AND THE COMMUNITY We recognise that our business activities can have an impact on the communities in which we operate. We remain very keen to interact responsibly with such communities and support the needs of the local areas. Our teams continue to take part in community initiatives, sponsorship and fundraising activities and we encourage them to do so. We continue to sponsor Our HR Director continues in her role as an Enterprise Adviser for a local community college. This has meant supporting their careers fairs and attending meetings with the senior management team of the college to discuss how best Trifast can assist and where support can be provided. In addition, presentations have been made to senior pupils about how to go about preparing for interviews, what to expect at an interview and what is expected once they start their careers. We have also provided TR employees to act in role play situations for interview skills development for the pupils. The Enterprise Adviser network comprises representatives from other local businesses and provides a good opportunity for skills and experiences to be shared. 43 sluglinewww.trifast.comTRIFAST IN THE COMMUNITY TR Fastenings Global Customer Quality Manager, Maddy Webb, has been supporting the Friends of Mombasa Children (FOMC) charity. Maddy has been collecting socks and working with voluntary teams at TR’s UK sites to provide sock-toy making instructions to teach children in Kenya to make sock- toys. Maddy has also been collecting sock-toys and Lego for classroom activities and financial donations to support the charity’s fundraising goals. TR Fastenings congratulates Jake Holmes on winning the TR sponsored Young Employee/Apprentice of the Year category in the 2016 Uckfield Business Awards. TR Scotland’s Annmarie McArdle has completed a collection of chocolate selection boxes for children under the care of a local Women’s Aid shelter for the third year running. TR Fastenings has become an official sponsor for Ryan Strafford, a Superbikes racer who has enjoyed huge success on the track since beginning his racing career six years ago. TR Fastenings is playing its part in supporting the next generation of engineers by supplying parts to a team of Sussex students taking part in the Greenpower race series. The scheme gives young people the opportunity to design, build and race an electric- powered racing car. The Uckfield Grasshoppers Junior Football Club, sponsored by TR Fastenings, has introduced the Football Association (FA)’s Coach Mentoring Programme helping the development of coaches at grassroots level. 44 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017TR Hungary is proud to announce it has become a sponsor of the Dabas VSE handball club, home to one of the 12 teams which will play in the nation’s premier league during the 2017/18 season. TR Fastenings sponsored the Wayfinder Woman ‘Inspiring Through Technology’ Event on 12 May 2017. The event celebrated the progress being made by businesses to support, encourage and further the careers of women in business, with a specific focus on industries in the STEM (Science, Technology, Engineering and Mathematics) sectors. Nick Rees, Business Development Manager at TR Fastenings Poole, took part in the ‘White Christmas Dip’ raising funds for Macmillan Caring Locally, supporting the Macmillan Unit at Christchurch hospital. A team of eight TR Fastenings employees, friends and family took on the challenge of the Hastings Half Marathon on Sunday 19 March to raise money for the Papworth Hospital Charity. The TR runners took between 1 hour 55 minutes and 3 hours to complete the punishing 13.1 mile course, and raised £2,155, more than double their original target of £1,000. TR Fastenings is pleased to announce its sponsorship of a group of Metropolitan Police (Met) football teams who are competing at the World Police Indoor Soccer Tournament in October 2017. Lancaster Fastener Co provides sponsorship to the Under 11 Blacks team at Thornton Cleveleys FC. To see all updates on community events and both local and international sponsorship stories visit our website: www.trfastenings.com/news/community 45 sluglinewww.trifast.comStrategic ReportMARKETING REPORT It has been another busy year for the Marketing team – as TR’s new strap line, ‘Holding the world together’ suggests, global support has never been more vital Abi Burnett Head of Marketing Sian Whitlock Marketing Executive Dan Jeffryes Creative Designer Tom Dewhurst Marketing Projects Assistant Nathan Blake Marketing Apprentice Our ongoing product email promotions have continued to be successful and plans are underway for more specific targeted campaigns to further ensure our customers are receiving the relevant information from TR. With so many products and services now available, it is important that we fully inform existing and potential customers just what TR can offer. PR and advertising is high on our list of priorities and a focus on industry is further highlighting TR as a leader in its field. We have a wealth of knowledge around the Company and we intend to fully utilise this talent moving forward with up-to-date technical and product related material. As always, we like to keep an element of fun in our marketing and have done so with seasonal promotions to our customers, including a trick or treat campaign and a festive Christmas animation. With our email open rates being above the national average, it is clear that our customers appreciate these lighter ways of promoting the Company. With this in mind we welcomed a new apprentice to the department in early 2017 to further help us support our teams around the world. To enhance the promotion of the Group’s capabilities, we supported our UK, European and USA locations at exhibitions last year. Focusing on automotive as one of the key industries that TR supports, we exhibited at Automechanika in Birmingham, the Global Automotive Components and Suppliers Expo in Stuttgart Germany and Fastener Fair Mexico. All three shows were hugely successful, so much so that we are again booked in to exhibit at all three in 2017. With our new commercial website launched at the beginning of 2016, our online presence is constantly being enhanced. An extensive range of products has been added over the last 12 months, increasing our total range to almost 50,000 parts, which gives our customers access to a very diverse range of fasteners and components. This is an essential tool for our global teams and we plan to continue increasing the content available, including individual sites for our Asian, USA and European locations and a range of technical animations to support the engineers and designers that use our commercial website as their go-to resource for fasteners. Our product and services literature has continued to grow with a revamped core product brochure and new combined product catalogues, including sheet metal and plastic hardware brochures being developed. The introduction of a new range of enclosure hardware has enhanced our already extensive range of sheet metal fasteners and has increased our product offering by over 5,000 parts. The new products include a range of hinges, locking systems, clamps and terminals as well as gaskets and accessories. We launched our new range to customers in early 2017, which included a brochure showing an overview of the entire range available. 46 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017THE TR WEBSITE Strategic Report Just over a year ago we launched our new customer support website Glenda Roberts Group Sales Director Keith Gibb Head of Web Development Peter Webb Software Development Manager Anjie Baker Web Project Manager Tim Vince Software Developer Abi Burnett Head of Marketing Jo Devlin Head of Projects – Strategic Team Designed, programmed and controlled entirely in-house, we now have a secure, dynamic website that is growing every month. As our website is primarily used by design engineers to specify the fasteners and components they require, we decided from the outset what would be needed from the new site: • A database driven site that would allow us to add new products quickly • Reference drawings for our entire range of parts • Downloadable PDF drawings and CAD models that would allow engineers to specify us easily • A responsive website that would work on any device • A totally reliable hosting service that could expand as required It was a daunting task which required thousands of new drawings and graphics to be created as well as compiling a database containing dimensional and technical information on over 40,000 parts. In addition, the entire site had to be programmed from scratch within 12 months. The in-house team of Keith Gibb, Peter Webb and Anjie Baker, supported by Abi Burnett and her marketing team delivered on time and the site, hosted on Microsoft’s Azure Cloud, was launched in February 2016. Head of Web Development, Keith Gibb says, ‘The response from customers has been terrific with many commenting on the design and quality of the site. Just as importantly, our customers’ engineers really appreciate the sheer amount of information we have on the site and how easy we’ve made it to specify our products.’ Just over a year after launch and the site has grown to over 50,000 parts with the most recent addition being a full range of enclosure hardware. Every month the TR site is visited over 25,000 times with the average visitor staying for more than three minutes per visit. That’s over 1,200 hours every month that customers are on our website. In addition, 1,400 of our 3D CAD models are downloaded every month. Googlewhack When we launched the site, we also introduced a global web reference system. Each reference number specifies a product precisely by type, size, material and finish and can be recognised by any TR location across the world. One unexpected benefit is search engines like them too. Entering almost any TR web reference into Google usually results in what’s known as a Googlewhack. This is where a search returns only one result. Clicking on this result in Google goes straight to the exact part on the TR website. What next? From the outset, our aim has always been to have the largest, most innovative, most visited fastener website in the world. To help achieve this, our plans for the next 12 months include: • More products with the addition of over 20,000 new parts • Customer areas of the site allowing companies to see products and information specific to them • Interactive 3D models of every product range • ‘How it works’ animations for many of the more complex products • Expansion of the much used knowledgebase All of the in-house programming so far has been done by TR’s Software Development Manager, but it became obvious that to meet the demands of the web team, more resource was required. In September 2016, a new programmer was appointed, who will be spending much of his time helping to develop the website further. Go to www.trifast.com to see the full list of our locations 47 sluglinewww.trifast.comRISK MANAGEMENT The IT health checks carried out around the Group have already started to prove their worth We are now putting in place schedules to rollout the ISO/IEC 27001:2013 Standard to the whole Group. This will be carried out on an incremental basis throughout the UK first and then to Europe and the USA/Asia. As I am sure most of you are aware there have recently been two major IT incidents, the first one being the WannaCry ransomware virus. We are happy to report that TR was not affected by this ransomware and would like to think the investment in our cyber security that the Company has made prevented this. The second incident was the airline system crash caused by a power outage in their data centre and lack of adequate backup processes. Again, TR has a secure datacentre that has a more than adequate backup power source which is tested on a regular basis and we can report that we have never lost any connectivity during the switch to backup power. Also, TR has multiple backup processes continually running that provide the organisation with the ability to restore the Company’s systems and data within an appropriate time frame. One of the consistent cyber threats to TR and its Group of companies is email traffic. Email threats come in different varieties, from a simple phishing mail to a more direct virus hidden in an attachment. TR have invested heavily in this area and, as you can see from the statistics, the investment has paid dividends. IT Risk management TR Systems have had a busy year assessing and addressing IT risk around the Group and, as mentioned in last year’s report, the IT team have tackled the risk head on. IT health checks have been carried out in all European sites and the process has also started in Asia. Further visits to Asia and the USA are planned for FY2018 to complete the IT risk review of the entire Trifast plc Group of companies. The IT health checks have already started to prove their worth as, following on from health checks carried out around the Group in 2016, potential weaknesses in the IT Infrastructure were identified. To confirm these weaknesses penetration tests were carried out by PTP (Pen Test Partners). PTP are a leading penetration testing and security company with which we have established a good working relationship. Their reports highlight the risks and vulnerabilities and exactly what needs to be addressed in risk priority. Alongside the IT health checks and penetration tests, 2016 saw a major effort by all sections of the TR Systems department to address the requirements of the ISO/IEC 27001:2013 Information Security Management System, with the aim to achieve accreditation by the British Standards Institution (BSI). The process involved consideration of all aspects of information security with risk assessments being the major starting point. All members of the team were asked to consider any area that could be susceptible to security threats and where these were found they were immediately addressed. December 2016 saw the final push and we were pleased to be awarded the accreditation at the final assessment before Christmas. To ensure information security is seen as a continual process, an Information Security Forum (ISF) has been established. This forum is made up of personnel from across the business and meets regularly to review all aspects of information security including any security incidents that may have occurred. Internal audits are also carried out throughout the year with annual BSI assessments scheduled to ensure the Company continues to comply with the Standard. Information security is included as part of our day-to- day processes. We have already seen benefits of compliance to the Standard with new and existing customers now being assured of our ongoing commitment to the security of both our own and our customers’ information. 48 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Colin Coddington IT Director Stephen Hopkins IT Operations Manager Peter Webb Software Development Manager Stephen Maxwell Web Developer Tim Vince Software Developer Stephen Whittle Analyst Programmer Damian White Systems Engineer Graham Morrison Junior Technician Kerry Moran Support Desk Manager Chris Tull Support Desk Analyst Lucy Sinden Support Desk Analyst Dan Perrin Support Desk Analyst Incoming mail summary message category Stopped by reputation filtering Stopped as invalid recipients Spam detected Virus detected Detected by advanced malware protection Messages with malicious URLs Stopped by content filter Stopped by DMARC S/MIME verification/decryption failed % Messages 93.0 34,907,012 0.7 0.8 0.0 0.0 0.0 0.0 0.0 0.0 262,815 296,159 2,260 384 13,640 11,231 0 0 UK Asia Ireland Total threat messages: 94.5 35,493,501 Marketing messages Social networking messages Spain Bulk messages Global IT S/MIME verification/decryption successful Italy Clean messages Total attempted messages: Total graymails: 1.2 0.1 0.4 1.7 0.0 3.8 450,394 30,963 132,496 613,853 0 1,439,753 37,547,107 Hungary Holland USA Sweden Norway Germany Key: 3rd Party Support Partner Managed by Group IT Services Managed by Group IT Services Partner In summary TR have received 37,547,107 emails in the last year. 36,107,354 were blocked by our collection of email defence solutions. This means that only 1,439,753 emails were delivered which equates to c.4% of mail traffic. Assuming it takes the average user five seconds to process a mail this is a saving of 5.7 years of one person’s time. TR Systems have worked hard on establishing a global IT support structure. With many subsidiaries spread far and wide around the globe the best solution is to form good relationships with third party support partners that, under TR Systems guidance, will deliver the same level of security that the majority of TR locations already receive. This model also allows flexibility when new acquisitions join the Group. 49 sluglinewww.trifast.comStrategic ReportRISK MANAGEMENT VIABILITY STATEMENT In line with provision C.2.2 of the code, the Directors have assessed the prospects of the Company taking into account the current position and principal risks to determine whether there is a reasonable expectation that the Group will be able to meet its liabilities as they fall due over a specified period of time. The Directors have carried out this longer term viability assessment over a period of three years as this aligns with the Group’s detailed forecast which is approved at Board level. Three years is considered an appropriate period of time for the Group as it strikes the right balance between the need to plan for the long term whilst considering the uncertainty that arises in relation to assumptions the further you look ahead. The period is also within the term of the HSBC banking facilities which have been disclosed in note 20 and 26 to the financial statements. In assessing the prospects of the Group over the three year period, the Directors have also considered the Group’s current financial position as well as its financial projections in the context of the Group’s debt facilities and associated covenants. These financial projections are based on a bottom-up budgeting exercise for FY2018 and FY2019 which has been approved by the Board and a more top down view aligned to the Group’s strategic objectives for FY2020. The Group’s base projections indicate that debt facilities and projected headroom are adequate to support the Group over the next three years. In conducting the assessment, the Directors have considered the principal risks outlined on pages 51 to 53 to perform stress testing on the forecast so as to determine the impact on the financial position and performance of the Group. These risks have been identified by the Board, and are actively monitored on an ongoing basis, the most significant of which are considered in more detail below: 1. Potential impact that Brexit could have on the business due to foreign exchange movements, the possibility of a general downturn in the UK economy and/or the future impact of WTO tariffs. To date the impact has largely been in the form of foreign exchange translation tail winds, which have significantly increased our Group results at AER. In time there is a risk that this could reverse if the relative value of Sterling were to increase again, although such a reversal will only bring our results back to where we were in FY2016, which was itself a year of strong profitable growth for the Group. We are also starting to experience some pricing pressures due to the extended weakness of Sterling against the US Dollar and recent increases in raw material pricing. We are monitoring this situation closely and are already in negotiation with a number of our key suppliers and customers to ensure that we can minimise the impact of this. In the longer term, as a global business with worldwide logistics and over 70% of our revenue generated outside of the UK, we consider have the flexibility to withstand any UK specific challenges by either adjusting our supply routes in the medium term, or even potentially following our customer base overseas if UK manufacturing moves in the longer term. 2. A serious quality issue occurring, both in terms of an immediate reduction in revenue, and possible penalties incurred, and longer term, considering the impact to our reputation, including the possible risk that this could lead to the loss of one or more of our key multinational OEM customers. We have robust quality processes in place around the world, both in terms of our own manufacturing processes and our vendor assessment and sourcing policies. In addition, our established global quality team and issue resolution procedures ensure that any supply problems that do arise are dealt with and resolved as soon as possible for our customers, ensuring that the costs incurred by us and the end customer are minimised as far as possible. However, although this has not happened in our 43 year history, it is possible to imagine a more significant quality issue arising with a customer which could result in substantial recall costs and penalties. In these circumstances, our comprehensive global guarantee and recall insurance would be utilised to cover any direct costs incurred. Although, the ongoing negative impact on the business may still be significant whilst the market builds back up its trust in the Group. 3. The risk of a significant cyberattack, or data security breach could incur penalties and have a serious impact on the Group’s ability to trade in the short term, with longer term negative implications to our reputation in the marketplace and therefore our ability to meet our growth targets in the medium term. We have made substantial additional investments in to our cyber security, including our back-up data storage and power systems in recent years and have global IT policies in place that are managed by a dedicated in-house team. We continue to invest in IT security and are rolling out ISO 27001 around the world. However, in this world of heightened cyber risk, it is not impossible that a circumstance could arise where our trading results have been negatively impacted as a result of a cyber threat or data loss. The scenarios above are hypothetical and purposefully severe for the purpose of creating outcomes that have the ability to threaten the viability of the Group. It is considered unlikely, but not impossible, that the crystallisation of a single risk would test the future viability of the Group. However, as with many companies, it is possible to construct scenarios where either multiple occurrences of the same risk, or single occurrences of different risks could put pressure on the Group’s ability to meet its financial covenants. In the case of these scenarios arising, various options are available to the Group in order to maintain liquidity so as to continue in operation such as: accessing new external funding early; more radical short-term cost reduction actions; and reducing capital expenditure. None of these actions are assumed in our current scenario modelling. After considering the risks identified and on the basis of the assessments completed, the Directors believe that there is a reasonable expectation that the Company will be able to continue to operate and meet its liabilities as they fall due over the next three years. 50 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Risk Table How the business manages risk As a Public Listed Company and in line with the UK Corporate Governance Code, “The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The Board should maintain sound risk management and internal control systems”. The Board recognises that the management of risk is required to enable the business to meet its objective to create ‘stakeholder value’. Risk management Risk Personnel & resource Quality and manufacturing Foreign exchange volatility Description and potential impact Without both adequate resource and appropriate investment in our people and succession planning across all levels of the business from the Board down, we may not be able to deliver our future strategic plans and long term success We recognise that the quality of our manufactured and externally sourced products is of critical importance. Any major failure will affect customer confidence and may lead to immediate financial penalties A significant portion of the Group’s revenue and profit is generated outside of the UK. Due to translation risk, the Group results could be adversely impacted by an increase in the value of Sterling relative to foreign currencies. In addition, a transactional risk exists as the Group sources certain products from the Far East for sale across Europe Current mitigation Has the risk materialised? Trend Our succession planning and gap analysis processes identify key employees and roles within the business and are designed to broaden and transfer our specialist knowledge and skills base. We invest heavily in our people via ongoing training and our Group wide Performance Development Programme to ensure there is adequate opportunity to allow our people to ‘move up’ within TR. Rewards are reviewed annually to ensure they remain at levels that are competitive within the marketplace Our established global quality team maintains our Group wide quality compliance protocols. Quality inspection processes across our manufacturing and distribution sites and vendor base are robust, allowing us to offer zero-defect supplies to customers where required and appropriate insurance is maintained and reviewed annually Transactional hedging is achieved via the commercial matching of transactions wherever possible. Non-functional currency balance sheet items are minimised and net investment hedging is used for any significant acquisition finance We regularly review our foreign exchange mitigation strategies with our advisors to ensure that these remain fit for purpose in these challenging times The Group enjoys extremely high retention levels with 46% of staff having been in the Group for more than ten years and the average length of service being over ten years. All key succession risks are appropriately managed The Group has not experienced any substantial quality issues, although quality is moving further up the agenda across all sectors of our client base Foreign exchange volatility has been significantly higher with increases of c.10% across a basket of the Group’s key currencies Our results have been presented at CER and AER to assist our stakeholders’ understanding of the underlying business. Further information in respect of the Group’s policies on financial risk management objectives including policies to manage foreign exchange is given in note 26 www.trifast.com 51 sluglineRISK MANAGEMENT Risk Macro- economics Description and potential impact Traditionally distribution/ manufacturing sectors bear the effect of inventory reduction in challenging economic periods earlier than other industries Loss of a key customer and debtor exposure Interruption of supply Inventories obsolescence Good relationships with our customers is key to the business. Any lack of holistic support or an inconsistent approach to the trading and management of key global customers across the Group increases our exposure to customer loss Increased trading levels lead to higher debtor balances, raising our exposure to customer failure and bad debt write downs The Group sources products both internally and externally for customers around the world. If we were unable to supply a customer in line with their ongoing manufacturing requirements, the risk both to our reputation and in terms of potential stoppage penalties would be substantial The Group holds substantial inventory balances across the world. As the business grows these levels will increase to meet both transactional needs and the requirements of our multinational OEM customers. Higher stock levels lead to an increased exposure to obsolete inventory 52 Current mitigation Has the risk materialised? Trend By operating globally and across a number of sectors, the Group is better able to manage the risk of regional or industry contractions. As customers move, or expand, we have the capability and flexibility to move with them, whilst our first class customer service works to protect us from rapid supplier changeover We hold less than 1% of a £25bn target market meaning growth via market share remains credible even in a falling market Our global multinational OEM focus means we are able to build strong head office and local relationships with our key multinational customers. Improving our supplier power and helping us to retain and grow key trading relationships for the longer term We maintain strong credit control procedures from new customer set up, through to regular monitoring as trade develops. We also have global catastrophe credit insurance cover We hold appropriate stock levels to service our customers’ needs at all times. Our pan-global presence means we are able to operate along multiple transport routes, shielding us from localised issues. For all key products we maintain multiple sources to ensure adequacy of supply. Our approved vendor due diligence processes also help to mitigate the risk of a supply chain breakdown. We ensure that our top 20 suppliers are visited at least every year to maintain this Stock management processes are a key part of the Group’s internal controls and stock days are a KPI, monitored locally and at Board level. We continue to invest in stock management processes and systems to ensure we keep optimum levels across the world. Our multi-locational set up, allows us to reduce lead times, and therefore stock holding, as far as possible The global economy remains in a period of growth, albeit that current conditions have become significantly less settled than in previous years The Group has not in recent years experienced any substantial credit issues and attrition of our key multinational OEMs remain very low In recent times, political and climatic instability have increased in a number of countries across in the world. Where we have encountered issues, our established and flexible logistics have allowed us to continue to offer timely and reliable supply to our customers Customers’ requirement and our product mix are ever evolving. Our tight stock management and engineering know-how allow us to view these changes as an opportunity to develop and sell new lines, rather than as a risk to the business sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Strategic Report Risk Cyber security Description and potential impact Unauthorised access to, or a breach of, our systems, networks or premises, could immediately and materially affect our reputation with possible implications for revenue and growth over the short to medium term. Such a breach may also cause financial loss Impact of BREXIT: FX/ Transaction risk/ pricing pressures The prolonged weakness in Sterling may bring inflationary pressures to our imported purchase costs into the UK Post-Brexit trading rules (WTO) A default to WTO rules could have a negative impact on trading between our UK sites and the EU/our EU sites and the UK UK macro-economic environment Given the degree of uncertainty in the wider market, the extended weakness in Sterling and the risk of restrictions to our ongoing access to the single market the UK economy may contract in the medium term. If we are unable to react to a possible slow down sufficiently quickly and effectively, then temporary trading/ restructuring losses could be incurred if the UK business needs to resize Current mitigation Has the risk materialised? Trend The Group has not to date experienced any significant cyber security threats We are proud to have this year achieved accreditation of the ISO/ IEC 27001:2013 standard for Information Security Management Systems in our Group IT function, which is to be rolled out to the wider Group Towards the end of the financial year, we have started to see some pricing increase requests being made from suppliers and negotiations have begun to manage this risk The situation at the moment is unclear, but a hard Brexit may lead to a default to WTO rules. We are currently reviewing our options as a business, in advance of greater clarity The UK economy continues to grow, albeit slower than expected in recent weeks. The automotive sector is our largest UK sector and positive discussions have been held by Theresa May (UK Prime Minister) with a number of the UK’s major car manufacturers We will continue to monitor the situation closely over the coming months to ensure we are able to react quickly to any change in circumstances We have undertaken a review of our cyber security controls worldwide. Additional investment has been made where required to manage our risk. Our IT policies are managed by a dedicated in-house team and access to systems is strictly limited to appropriate personnel. IT risk reviews are routinely carried out across all our sites We perform ongoing reviews of our global supplier base as a matter of course to manage pricing pressures that arise. In the UK these reviews have been designed to specifically focus on the ongoing impact of foreign exchange fluctuations to ensure we continue to strike the best deal with our suppliers As a global group with a number of EU subsidiaries we are in a strong position to manage our supply chain to allow trading routes that bypass a UK-EU or EU-UK transfer to a large extent. We see this challenge as an opportunity to insert greater efficiencies into our supply chain Regular quarterly forecasting and sales trend analysis at UK level will identify any issues as soon as possible. Whilst our access to the UK distribution market, acts as a good barometer of the wider marketplace, providing us with an early insight in to toughening market conditions and allowing us to react quickly and effectively if a changing situation demands it In the short term, manufacturing levels are protected by existing manufacturing investments in the UK, most specifically in the automotive sector In the long term, we are a global business with the flexibility to follow our customers wherever they may end up following any prolonged downturn in the UK manufacturing industry 53 sluglinewww.trifast.comHOLDING THE WORLD TOGETHER INTRODUCING THE LEAD TEAM GEOFF BUDD Commercial Director & European Managing Director Length of service 41 years; appointed to the plc Board in 1986 Key areas of expertise Geoff has extensive knowledge of the industry, European and Asian markets particularly in sales & purchasing, manufacturing management and quality. His role gives him responsibility for all of the European operations but he also holds the responsibility for the Group on all aspects of the commercial business, specifically advising the Board on capex requirements for the manufacturing sites Committee membership By invitation GLENDA ROBERTS Group Sales Director Length of service 27 years; appointed to the plc Board in 2010 27 years as Director of TR Fastenings Limited and Director for TR USA since July 2012 Key areas of expertise Global sales & marketing experience in logistics & global supply chain, Key Account Management (KAM) and customer relationship management Committee membership By invitation MALCOLM DIAMOND MBE Non-Executive Chairman Length of service Total 42 years; appointed as Non-Executive Chairman on 1 April 2017 Formerly, Trifast Executive Chairman after being re-appointed in 2009, CEO for 18 years before retiring in 2002. 1984-2002 Managing Director, TR Fastenings Limited Key areas of expertise Significant commercial skills and leadership experience gained from growing an international business covering Sales and marketing, strategic planning and implementation, business development and investor relations Other directorships Non-Executive Chairman (appointed May 2014) at Flowtech Fluidpower plc , the UK’s leading supplier of technical hydraulic fluid power products (Ticker- AiM: FLO) and joined the Board of Acal plc, a leading designer and manufacturer of specialist electronic components (Ticker: ACL), in November 2015 before being appointed Non- Executive Chairman in April 2017 Committee membership Chairman of the Nominations Committee and by invitation 54 Trifast plc Annual Report 2017 sluglineHOLDING THE WORLD TOGETHERCLARE FOSTER Chief Financial Officer MARK BELTON Chief Executive Officer LYNDSEY CASE Company Secretary Length of service 2 years; appointed to the plc Board 1 October 2015 Length of service 18 years; appointed to the plc Board in 2010 and CEO on 1 October 2015 Length of service 17 years; appointed as Company Secretary 1 April 2016 Key areas of expertise All aspects of group financial management, accounting governance and strategic planning and implementation across all levels Committee membership By invitation Key areas of expertise Over his career with Trifast, Mark has forged a wealth of knowledge and great understanding of the industry, the TR model, key sectors and our customer portfolio. As Group Finance Director, he also played a pivotal role in the successful acquisitions of PSEP in Malaysia, VIC in Italy and Kuhlmann in Germany. Other skills include all aspects of strategic and financial planning, and investor relations Committee membership Nominations Committee and by invitation Key areas of expertise Lyndsey joined the Group’s TR Fastenings UK Finance team in 2000 before moving to the Group Finance Team in 2006. She is an FCCA and experienced in financial accounting, reporting and compliance Committee membership Secretary to the Committees and by invitation sluglineStrategic Report NEIL WARNER Senior Independent Non-Executive Director JONATHAN SHEARMAN Independent Non-Executive Director Length of service 2 years; appointed to the plc Board on 16 June 2015 Length of service 8 years; appointed to the plc Board in 2009 SCOTT MAC MEEKIN Independent Non-Executive Director Length of service 4 years; appointed to the plc Board in 2013 Key areas of expertise Investment Fund management, stockbroking and investment banking, and charitable foundations Other directorships Non-executive director at AiM listed Orchard Funding Group Committee membership Chair of the Remuneration Committee and a member of the Audit Committee and the Nominations Committee Key areas of expertise Experienced Senior Independent Director with strong City relations. Extensive knowledge of international businesses gained over 30 years in commerce; solid understanding of key strategic drivers – growing sustainable businesses globally, M&A, compliance, risk management and IT Other directorships Non-Executive Director at Vectura Group plc (VEC) and of AiM listed Directa plus (DCTA) Committee membership Chair of the Audit Committee and a Member of the Remuneration Committee and the Nominations Committee Key areas of expertise 30+ year career in both commercial and corporate structures across all major continents and cultures in finance, M&A, global logistics, technology, distribution and manufacturing Other directorships Director at Morgan Legend Limited Hong Kong, Director at Tes-Amm Private Limited, and CEO at Dearman Engine Company Member of Harvard Alumni Association & National University Singapore Alumni Association Committee membership Member of the Audit Committee and Remuneration Committee Trifast plc Board Executive and senior managers All other employees Trifast Executive Board Female 25% Male 75% Female Male Female Male 28% 72% 32% 68% Female 50% Male 50% www.trifast.com 56 sluglineHOLDING THE WORLD TOGETHER CELEBRATING LONG SERVICE ACROSS THE GROUP Malcolm Diamond 1975–to date Geoff Budd 1976–to date Glenda Roberts 1990–to date 1973 TR Fastenings established by Mike Timms and Mike Roberts 1975 Started working at TR 1976 Started working at TR, in the warehouse and as a driver First UK in-house manufacturing facility established and the Hank name purchased 1982 Acquired the rights to the BINX Nut and sole global manufacturer 1982-1990 Six new TR sites opened across UK 1984 Appointed to the Board 1986 Appointed to the Board 1990 Started working at TR 1992 Introduced Vendor Managed Inventory into the fastenings industry (VMI) 1993 Acquired Fastener Techniques (UK) 1994 Acquired Southern Industrial Fasteners (Southern Ireland) Obtained a full listing on the London Stock Exchange 1996 Acquired: Magne Bjorlo (Norway), Microscrew (UK) 1997 Acquired Formac Technologies (Singapore), Polyfasteners (Malaysia) 1998 Acquired: Miller Holding (Holland), Lancaster Fastener (UK), Samson Industries (USA) 1999 Acquired FCF (Sweden) 2000 Set up greenfield distribution site in Hungary 2001 Acquired SFE (Taiwan) 2003 Acquired the globally recognised trademark of Pozidriv 2005 Acquired Serco Ryan (UK) 2009 Business restructured and new strategy implemented 2010 Appointed to the Board 2011 Acquired PowerSteel and Electro-Plating Works (Malaysia) 2013 TR Celebrates 40 years of trading 2014 Acquired Viterie Italia Centrale (Italy) 2015 Acquired Kuhlmann Befestigungselemente (Germany) 2016 Set up greenfield distribution site in Spain 57 Trifast plc Annual Report 2017 slugline HOLDING THE WORLD TOGETHER OTHER LONG SERVING EMPLOYEES Charlie Foo 44 years Sharon Cain 42 years Colin Styche 41 years Ahmed Sidat 40 years Nick Beeney 40 years Philip Nutley 39 years Poh Seng Khong 38 years Emanuele Dolce 37 years Nigel Miller 37 years Nick Barton 37 years Mick Hussey 35 years Jerry Howe 35 years Sam Wilson 35 years Bernie Wells 35 years Graham Fox 33 years Tamilaasin Subramaniam 33 years Roberto Bianchi 31 years Samantha Hobbs 33 years Krishnasamy Velayathem 30 years Simon Lockeyear 33 years James Craft 31 years Darren Hector 30 years Per Edlund 29 years Wilson Chen 29 years Tara Barden 29 years Jumiran Tukiman 29 years Geoff Blackford 29 years David Stamp 29 years Ashley Edge 29 years Mandy Scott 28 years Michelle Horscroft 28 years Glenn Blackford 28 years Paul Leys 28 years Sylvia Millsom 28 years 58 Kennady Subramaniam 33 years Martin Greenwood 31 years Muniandy Subramaniam 29 years Tony Lemiech 29 years sluglineTrifast plc Annual Report 2017Strategic Report Fernando Gaggioli 28 years Keith Gibb 27 years Md Suhairi Md Jauhari 26 years Alessio Alessandrini 28 years Wayne Coupland 27 years Ismail Hadi 26 years Lee-Andrew McCurry 26 years Loganathan Kasinathan 25 years Poh Chai Lim 28 years Ping Siong Tong 28 years Ban Wah Foo 28 years Chin-Hwa Chang 27 years Hamdan Mohd Yahaya 27 years John Stewart 27 years Stephen Smith 27 years Sarojah Iriesan 26 years Wayne Carr 26 years Chris Speed 26 years Guy Dalleywater 26 years Andy Dawes 26 years Perumal Pichamuthu 25 years Kin Kok Chong 25 years James Mileham 25 years Stevie Meiklem 25 years Stuart Harkness 25 years Susan Blackford 25 years Paul Standing 25 years Dale Edge 25 years Baharuddin Mat Jahya 25 years Husaini Lutfi Husain 25 years The Strategic report was approved by the Board of Directors on 12 June 2017 and signed on its behalf by: Malcolm Diamond MBE Non-Executive Chairman Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW Company registered number: 01919797 59 sluglinewww.trifast.comsluglineOUR GOVERNANCE Directors’ report Corporate governance Audit Committee report Nominations Committee report Directors’ remuneration report Statement of Directors’ responsibilities 62 64 66 69 70 87 sluglineDIRECTORS’ REPORT The Directors present their Annual Report on the affairs of the Group, together with the Financial Statements and Auditor’s Report, for the year ended 31 March 2017 Results and proposed dividends Total Group revenue from continuing operations was £186.5m (2016: £161.4m) and the profit for the year before taxation was £17.3m (2016: £13.1m). Underlying profit before tax for the Group was £20.5m (2016: £16.0m); see note 2 for breakdown. The Directors’ remuneration and their interests in share capital are shown in the Remuneration report on pages 70 to 86. Those Directors who are retiring and, being eligible, offer themselves up for re-election, are shown in the Corporate governance statement on pages 64 to 65. Biographical details can be found in Board of Directors on pages 54 to 56. Substantial shareholdings Details of the share structure of the Company are disclosed in note 24. As at the year end on 31 March 2017, the Company was aware of the following material interests, representing 3% or more of the issued share capital of the Company. Axa Framlington Investment Managers Schroder Investment Management BlackRock Investment Management (UK) Mr Michael Timms Hargreave Hale Liontrust Asset Management Hargreaves Lansdown Asset Management JP Morgan Asset Management Threadneedle Investments No. of shares held 11,356,034 11,200,000 % of shareholding 9.44 9.31 8,479,718 8,000,000 7,752,814 7,268,917 4,297,598 4,130,000 3,666,653 7.05 6.65 6.44 6.04 3.57 3.43 3.05 As at 1 June 2017, material interests representing 3% or more of the issued share capital of the Company were: AXA Framlington Investment Managers Schroder Investment Management Black Rock Investment Management (UK) Liontrust Asset Management Hargreave Hale Mr Michael Timms JP Morgan Asset Management Hargreaves Lansdown Asset Management Threadneedle Investments No. of shares held 11,356,034 11,200,000 9,136,736 7,519,783 7,519,314 7,456,304 4,130,000 % of shareholding 9.44 9.31 7.60 6.25 6.25 6.20 3.43 4,065,554 3,622,790 3.38 3.01 Financial instruments Information in respect of the Group’s policies on financial risk management objectives including policies to manage credit risk, liquidity risk and foreign currency risk are given in note 26 to the financial statements. The Directors recommend a final dividend of 2.50 pence (2016: 2.00p) per ordinary share to be paid on 13 October 2017 to shareholders registered at the close of business on 15 September 2017. This together with the interim dividend of 1.00 pence (paid on 13 April 2017) (2016: 0.80p) brings the total of the year to 3.50 pence (2016: 2.80p). The 2017 recommended final dividend has not been included within creditors as it was not approved before the year end. The 2017 interim dividend is also unrecognised as it was paid post year end. The Strategic report provides a detailed analysis of the results in the year and an indication of future developments. Annual General Meeting The Annual General Meeting will be held on 27 July 2017 at Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW. Directors and Directors’ interests The Directors who held office during the year were as follows: Chairman MM Diamond MBE Non-Executive Director (appointed 1 April 2017; previously Executive Chairman) Chairman of Nominations Committee Executive Directors MR Belton CL Foster GP Budd GC Roberts Chief Executive Officer Chief Financial Officer Commercial Director & European Managing Director Group Sales Director Independent Directors (Non-Executive) NW Warner Senior Independent Chairman of Audit Committee Chairman of Remuneration Committee JPD Shearman SW Mac Meekin 62 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Auditor The Board has decided to propose KPMG LLP to be reappointed as auditor of the Company and a resolution concerning their appointment will be put to the forthcoming Annual General Meeting of the Company. By order of the Board Lyndsey Case Company Secretary Trifast House Bellbrook Park Uckfield East Sussex TN22 1QW Company registration number: 01919797 Corporate governance The Corporate governance statement on pages 64 to 65 should be read as forming part of the Directors’ Report. Takeover directive Where not provided elsewhere in the Directors’ report, the following provides the additional information required to be disclosed as a result of the implementation of the Takeover Directive. There are no restrictions on the transfer of ordinary shares in the capital of the Company other than certain restrictions which may from time to time be imposed by law (for example, insider trading law). In accordance with the Listing Rules of the Financial Conduct Authority, certain employees are required to seek the approval of the Company to deal in its shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of shares or on voting rights. No person has any special rights of control over the Company’s share capital and all its shares are fully paid. The rules governing the appointment and replacement of Directors are set out in the corporate governance section of the Directors’ report on pages 64 to 65. The Company’s Articles of Association may only be amended by a special resolution at a General Meeting of shareholders. The Company is party to a number of banking agreements that, upon a change of control of the Company, could be terminable by the bank concerned. Outside of the extension of certain Directors’ rolling contract periods and notice periods (see page 80), there are no agreements between the Company and its Directors or employees which provide for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. The Company is not aware of any contractual or other agreements which are essential to its business which ought to be disclosed in the Directors’ report. Employees The Group has a policy of offering equal opportunities to employees at all levels in respect of the conditions of work. Throughout the Group it is the Board’s intention to provide possible employment opportunities and training for disabled people and to care for employees who become disabled having regard to aptitude and abilities. Our Corporate Social Responsibility Statement can be found on our website www.Trifast.com and further details are provided in the Strategic Report. Regular consultation and meetings, formal or otherwise, are held with all levels of employees to discuss problems and opportunities. Information on matters of concern to employees is presented in the in-house letters and publications. 63 sluglinewww.trifast.comOur GovernanceCORPORATE GOVERNANCE (forming part of the Directors’ report) With exceptions as highlighted below, the Company complied with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council in September 2014 The Board met seven times during the period, with attendance as follows: MM Diamond MR Belton CL Foster GP Budd GC Roberts NW Warner JPD Shearman SW Mac Meekin Attendance in 2016/17 7 7 7 6 6 6 7 7 The Directors retiring by rotation are Neil Warner and Scott Mac Meekin who, being eligible, offer themselves for re-election at the forthcoming Annual General Meeting. In addition, following his appointment to Non-Executive Director, from Executive Director, Malcolm Diamond offers himself for re-election at the forthcoming Annual General Meeting. The Chairman and Senior Independent Non-Executive Director confirm that following formal performance evaluation, the individuals seeking election and re-election continue to be effective and demonstrate commitment to the role. The Company has separate posts of Chairman and Chief Executive. The Chairman leads the Board and the Chief Executive is responsible for the management of the Company, implementing policies and strategies determined by the Board. The contracts of appointment of Non-Executive Directors are available for inspection on request to the Company Secretary. The Independent Non-Executive Directors have full access to the external auditor and to management and there is a formal procedure for Directors to obtain independent professional advice in the furtherance of their duties should this be necessary. All Directors have access to the advice and services of the Company Secretary. Appropriate and relevant training is provided to the Directors as and when required. The Board acknowledges Malcolm Diamond is a Non-Independent Non-Executive Chairman (Executive Chairman until 1 April 2017) which does not comply with the requirements of section A.3.1 of the Corporate Governance Code. However, the Board believes that, given Mr Diamond sits as Chairman and is a non-executive in other companies, his experience from these appointments and his previous knowledge of Trifast is invaluable and can best be delivered through the position of Chairman. The Company has applied the principles set out in the Code, including both the main principles and the supporting principles, by complying with the Code as reported above. Further explanation of how the principles and supporting principles have been applied is set out below (including in the Audit Committee and Nominations Committee reports and in the Directors’ remuneration report on pages 70 to 86 and in the Viability statement on page 50). Details of substantial shareholdings of the Company can be found on page 62. The structure of the Board and its standing committees is as follows: The Board Currently the Board consists of four Executive Directors, three Independent Non-Executive Directors and a Chairman. The Non- Executive Directors are considered to be independent of management and free from any business or other relationship which could interfere with the exercise of their independent judgement for the purposes of the Code. The Chairman, who is a Non-Executive Chairman, is not considered by the Board to be independent. On 1 April 2017, Malcolm Diamond moved from being Executive to Non-Executive Chairman. The appointment, replacement and powers of the Directors are governed by the Company’s Articles of Association, the Corporate Governance Code, the Companies Act, prevailing legislation and resolutions passed at the Annual General Meeting (‘AGM’) or other general meetings of the Company. The Senior Independent Non-Executive Director is Neil Warner, who was chosen due to his executive and non-executive board experience with other companies. All Independent Non-Executive Directors have the authority to meet with shareholders without first seeking approval from the Chief Executive or the Chairman. Upon appointment the Directors are required to seek election at the first AGM following appointment. All Directors are required to submit themselves for re-election at regular intervals and a minimum of one third of Directors must be re-elected on an annual basis. 64 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017During the year being reported upon we engaged with: Peel Hunt LLP — Stockbroker to the Company, Institutional Fund Managers TooleyStreet Communications — Investor Relations Analysts, Private Client Brokers and Media Edison Investment Research — Investment Research, available on the Trifast website The members of the Audit, Remuneration and Nominations Committees will be available to speak to shareholders at the AGM in order that they understand the views of the shareholders. In addition, shareholders can contact them at any time by writing to Trifast plc, Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW. Going concern After making enquiries, the Directors have reasonable expectations that the Group has adequate resources to continue in operational existence for the foreseeable future. Further information is given in the Basis of Preparation, note 1. For this reason, they continue to adopt the going concern basis in preparing the financial statements. By order of the Board Lyndsey Case Company Secretary Trifast House Bellbrook Park Uckfield East Sussex TN22 1QW The Board meets a minimum of five times a year and is supplied as early as practical with an agenda and appropriate papers. Directors are appointed by the Board on recommendation from the Nominations Committee. The Board monitors the financial performance of the Group, and approves and reviews major projects and acquisitions. The Board has formally adopted a schedule of matters which are reserved to the Board for decision, thus ensuring that it maintains control over appropriate strategic, financial, organisation and compliance issues to ensure the long term success of the Company. The Board undertakes annual evaluation of its own performance, that of its Committees and individual Directors and continues to train and evaluate senior managers below Board level in order to maintain its continuous succession policy. As part of this evaluation, the Board considers the balance of skills, experience, the independence and knowledge of the Board, its diversity, including gender, and how effectively the Board works together as a unit. The Board has delegated specific responsibilities to the Audit, Nominations and Remuneration Committees. Details are described on pages 66 to 86. The Directors have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks have been disclosed on pages 51 to 53. Internal audit As detailed in the Audit Committee report on pages 66 to 68, the Board, via the Audit Committee, formally considers the requirement for internal audit on an annual basis as part of its terms of reference. A formalised internal review process called a ‘health check’ has been in operation for some years. Whilst the Board recognises that this process does not constitute a fully independent internal audit function, it believes that due to the size of the Group, this provides appropriate comfort as to the operational and financial controls in place. Shareholder relations The Group has a website, www.Trifast.com, which is regularly updated to ensure that shareholders and other providers of capital are fully aware of the Group’s activities. The Group’s Registrar, Computershare, is linked to the Trifast website and offers services for shareholders. The Group also works with City specialists to ensure all levels of shareholders receive Trifast information. 65 sluglinewww.trifast.comOur Governance AUDIT COMMITTEE REPORT In a year of increased focus internally and externally on culture, values and judgements made to support strategic growth, I am pleased to report good progress in improving the quality of people, processes and systems that underpin all these elements Neil Warner, Chairman of the Audit Committee Dear Shareholder, I am pleased to present the Audit Committee (“the Committee”) report for the year ended 31 March 2017, which has been prepared by the Committee and approved by the Board. As a Committee, we have focused on the integrity, completeness and clarity of financial reporting, the areas where judgements and estimates are required in the financial statements and the quality and effectiveness of audit processes to complement the other risk management activities. The Board and Committee have also focused on the recently introduced governance requirements regarding the Annual Report and consider that, taken as a whole, the 2017 Annual Report is fair, balanced and understandable with appropriate references being made throughout the various sections, which I hope you will find helpful in understanding the information and disclosures contained within them. The Committee meetings are held to coincide with key dates within the financial reporting and audit cycle and I also meet with management on an ad-hoc basis. I would like to thank the Committee members, the executive management team and our external auditor, KPMG LLP (‘KPMG’) for the open discussions that take place at our meetings and the importance they all attach to its work. On behalf of the Audit Committee Neil Warner Chairman of the Audit Committee 12 June 2017 Committee membership and attendance In accordance with the Code, the Audit Committee consists entirely of the Independent Non-Executive Directors and met three times in the year Neil Warner (Chairman) Jonathan Shearman Scott Mac Meekin Attendance in 2016/17 3 3 3 The external auditor KPMG, the Non-Executive Chairman, the Chief Executive, the Chief Financial Officer and the Company Secretary are also invited to attend meetings, although it is only the Committee Chairman and its members who are entitled to be at a meeting of the Committee. The Board are satisfied that the members of the Committee have the breadth of knowledge, experience and financial dynamics to effectively fulfil their responsibilities. The Chairman, Neil Warner, has significant, recent and relevant financial experience as a former CFO of a FTSE 250 company and through his other Non-Executive appointments. The Director’s summary biographies can be found on pages 54 to 56 of this Report. Role and responsibilities The Committee operates within its terms of reference, which are reviewed on an annual basis and are available on the Company’s website or on request to the Company Secretary. The role of the Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing and monitoring: • the integrity and compliance of the financial information provided to shareholders including the strategic report, financial results, announcements and financial statements • the appropriateness of accounting policies and the supporting key judgements and estimates • whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable • the Company’s system of internal controls and risk management including the identification of principal risks and their mitigation and the requirement for a formal internal audit function (see pages 51 to 53 for Risk Management) 66 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 the external audit process and external auditors, making recommendations to the Board on appointment, remuneration, performance, expertise, independence and objectivity, along with the effectiveness of its scope, of the external auditor • • • • the processes for compliance with laws, regulations and ethical codes of practice including procedures for detecting, monitoring and managing the risk of fraud and the adequacy and security for its employees in relation to whistleblowing Key matters considered and activities during the year During the year, the Committee met to agree the audit strategy for the full year audit, reviewed the results of the external audit for the financial year and reviewed the external auditor’s half year review and the half year results. It also considered the results of the internal review process (‘health checks’) carried out as part of the cycle (more details of this process are given in the section ‘internal audit’ below) and finally it reviewed the Annual Report and the financial statements contained within it. The Committee reports to the Board on how it has discharged its responsibilities on a regular basis. The Committee’s prime areas of focus have been: • • the integrity, completeness and consistency of financial reporting and disclosures the areas where significant judgements (during the year, at and post the balance sheet date) and estimates are required in the financial statements • the materiality level to apply to the audit • whether the going concern basis of accounting should continue to apply in the preparation of the annual financial statements; and • • • the appropriateness of the bases of disclosure in the company’s viability statement the appropriateness of transactions separately identified and disclosed as one-off in order to highlight the underlying performance for the periods presented in the financial statements the appropriateness of transactions presented in Alternative Performance Measures (APM’s) in order to compare relevant results for the periods presented in the financial statements the key assumptions, judgements and estimates as detailed in note 31 to the financial statements to review the Group’s cyber risk strategy to ensure controls and testing are in place to mitigate the Group’s exposure to this growing risk Financial reporting and significant financial risks The Committee concluded that there were two significant financial risks arising from the financial statements which would require particular consideration during the year: • Valuation of customer-specific specialised inventory (recurring) The Group has significant inventory holdings which are specific to individual customer requirements. The Board recognises that as the business continues to grow the Group is required to carry additional inventory to meet its transactional and OEM business. This carries with it an increased exposure to recoverability of these balances. The Committee is satisfied that sufficient focus is given to this whole area and, in particular, the adequacy of provisions made for customer specific, slow moving and obsolete inventory. • Valuation of goodwill and other intangible assets (recurring) The determination of whether or not goodwill has been impaired requires a review of the value in use of the asset. The main judgements in relation to the review were considered to be the achievability of the long term business plan and the impact upon the plan of macroeconomic and regulatory issues. In addition, the Committee reviewed the discount rates used in projecting future cash flows to ensure they were within an acceptable range. The calculation of the value in use was undertaken and the Committee reviewed the conclusion, including sensitivity calculations. The Committee also held discussions with KPMG. The Committee concurred with management’s conclusion that goodwill is not impaired. Internal audit A formalised internal review process called a ‘health check’ has been in operation for some years and all business units are the subject of a health check on a rotational basis. The reviews, covering both operational and financial controls, are carried out by senior Group finance personnel, from Head Office, who are separated from the day to day activities within the entity which is the subject of the review. All health checks are presented by the Chief Financial Officer to the Audit Committee and remedial actions agreed. Whilst the Board recognises that this process does not constitute a fully independent internal audit function, it believes that due to the size of the Group, this provides appropriate comfort as to the operational and financial controls in place. 67 sluglinewww.trifast.comOur Governance AUDIT COMMITTEE REPORT Internal control The Board is ultimately responsible for the system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve strategic business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Corporate Governance Code requires that the Board reviews the effectiveness of the system of internal controls, in accordance with section C.2, including those of an operational and compliance nature, as well as internal financial controls. Having done so, the Committee is of the view that there is an appropriate ongoing process for identifying, evaluating and managing significant risks. Operating policies and controls are in place and have been in place throughout the year under review, and cover a wide range of issues including financial reporting, capital expenditure, information technology, business continuity and management of employees. Detailed policies ensure the accuracy and reliability of financial reporting and the preparation of Financial Statements including the consolidation process. The key elements of the Group’s ongoing processes are: • a full detailed review of the business risks undertaken as part of the ongoing day-to-day procedure of the business • an organisational structure with clearly defined lines of responsibility and delegation of authority • • • • • • that Group policies for financial reporting, accounting, financial risk management, information security, capital expenditure appraisal and Corporate Governance are well documented that detailed annual budgets and rolling forecasts are prepared for all operating units and reviewed and approved by the Board that performance is monitored closely against budget and material variances reported to the Board that the Committee is to deal with any significant control issues raised by the auditor that a formal schedule of matters specifically reserved for decisions by the Board is maintained that capital expenditure is controlled by the budgetary process with authorisation levels in place. Any single item of capital expenditure over £50,000 goes to the Board for approval with detailed written proposals and financial analysis of expected returns There were no significant control deficiencies identified during the year. External auditor The external audit is a continuous process. At the start of the audit cycle, KPMG present their audit strategy identifying their assessment of the key risks for the purposes of the audit and the scope of their work. For 2017 these risks were: the calculation of customer-specific inventory and valuation of goodwill. More detail is set out in KPMG’s report on pages 91 to 94. During the year the FRC’s Audit Quality Review team reviewed our external auditor’s (KPMG) audit of our 2016 financial statements. We have discussed the report with KPMG and the Audit Quality Review team. The review identified three areas for improvement in the audit which KPMG have addressed for the audit of our 2017 financial statements. Overall, the results of the review raised no issues which cast doubt on the fundamental quality of our audit or raised issues about our financial reporting. KPMG reports to the Committee at both the half and full year, setting out their assessment of the Group’s judgements and estimates in respect of key risks and the adequacy of the reporting. The Chairman of the Committee speaks to the lead audit director before each meeting and the whole Committee meets with KPMG in private at least once a year without executive management present. The Committee reviews the external auditor’s performance and ongoing independence and concluded that the external audit process is operating effectively and KPMG continues to prove effective in its role as external auditor. Non-audit services provided by KPMG In order to ensure the independence and objectivity of the external auditor, the Committee has a policy which provides clear definitions of services that the external auditor can and cannot provide. Tax compliance and advisory services are currently provided by another professional services firm PricewaterhouseCoopers LLP (‘PwC’). The policy also establishes a formal authorisation process, including either the tendering for non-audit services or pre-approval by the Committee for allowable non-audit work. The fees in relation to non-audit services are found in note 5 of the Annual Report. These relate to tax compliance services for PSEP and TR Formac in Malaysia. Reappointment of external auditor Following the completion of the audit, the Committee reviews the effectiveness and performance of KPMG with feedback from Committee members, senior executive management and finance personnel, covering overall quality, independence and objectivity, business understanding, technical knowledge, responsiveness and cost effectiveness. The Committee acknowledges the new EU rules with regard to auditor rotation and the requirement for companies to put audit services contracts out to tender at least every ten years (outside of transitional rules). KPMG has been our auditor for over 20 years. The current lead audit director at KPMG was appointed in September 2016 and will be required to stand down no later than the Annual General Meeting in 2020. Accordingly, and in line with the arrangements set out by the EU, the Committee continues to recommend to the Board that the tendering of the external contract should be either at the next rotation of audit lead director or earlier, if appropriate circumstances arise. There are no contractual obligations which restrict the Audit Committee’s choice of external auditor. The Committee and the Board have concluded that KPMG provides an effective audit and have recommended their reappointment at the 2017 AGM. 68 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017NOMINATIONS COMMITTEE REPORT The Nominations Committee’s key focus is to evaluate and examine the skills and characteristics that are needed in Board members to ensure the leadership team has the right balance of skills to deliver its progressive strategy for the benefit of all stakeholders Malcolm Diamond MBE, Chairman of the Nomination Committee Role The Committee keeps under review and regularly evaluates the composition of the Board and its Committees in order that they retain and reflect the appropriate balance of skills, knowledge, experience and independence to ensure their continued effectiveness. Succession planning The Nominations Committee has always had a robust plan to ensure that the Company’s successful culture, business model and growth strategy firmly established by the Senior Executive Board and the senior management team can be sustained well into the future. It is clearly evidenced that management development throughout the Group has prospered on the basis of promotion from within. Mark Belton is now into his second year as CEO, as is Clare Foster as CFO, and both have presided over a record year for revenue and profitability over the Company’s 43 year history, supported by Lyndsey Case, who was promoted to Company Secretary on 1 April 2016. In summary, the leadership team has the right experience, knowledge and determination to positively lead and take Trifast to the next stage of its growth aspirations. Malcolm Diamond MBE Chairman of the Nominations Committee 12 June 2017 Appropriate succession plans for the Non-Executive Directors, the Executive Directors and the Group’s senior management are also kept under review. The Nominations Committee’s terms of reference are available on the website or on request to the Company Secretary. Committee membership and attendance The Nominations Committee consists of two Independent Non-Executive Directors, including the Senior Independent Non-Executive Director, the Chairman and the CEO. Boardroom diversity Appointing the best people to the Board is critical to the success of the Company. The Committee has therefore concluded that while diversity, including gender diversity, is important when reviewing the composition of the Board and possible new appointees, the single most important factor is to identify and recruit/ develop people based on skills, leadership and merit. Given our commitment to appointing the best people and making sure that all employees have an equal chance of developing their careers with the Group, the Committee does not think it is appropriate to set targets for Board appointments; however, the current Executive Board comprises a 50:50 gender balance. Malcolm Diamond MBE (Chairman) Neil Warner Jonathan Shearman Mark Belton Attendance in 2016/17 2 2 2 2 69 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT We want this Executive team to continue into the next stage of growth for the Company whilst operating a Policy that is fit for purpose Jonathan Shearman, Chairman of the Remuneration Committee Dear Shareholder, Introduction As Chairman of the Trifast plc Remuneration Committee (the ‘Committee’), I am pleased to introduce our remuneration report for 2017 which has been prepared by the Committee in accordance with the relevant legal and accounting regulations, then approved by the Board. In arriving at the annual bonus and deferred equity outcomes for the 2017 financial year, the Committee assessed the achievement of the Group’s financial performance targets and the Executive team’s personal performance targets that were set at the start of the year: • Underlying diluted earnings per share growth of 28.3% exceeded the stretch target of 22% — It is worth noting that for the deferred equity element of the bonus scheme, the maximum performance target (threshold) was achieved ignoring the positive impact of currency movements in the year • ROCE of 19.9% ensured that the underpin of ROCE exceeding group WACC + 2% (12%) was met • Each Executive Director’s personal objectives were met such that there was no requirement to apply a reduction to the formulaic bonus outcome based on the achievement of the EPS target and the ROCE underpin • As a result, each Executive Director will receive the maximum annual bonus entitlement of 100% of salary and the maximum deferred equity award of 100% of salary The Committee is comfortable that the 2017 annual bonus and deferred equity outcomes reflect the underlying performance of the Company. Proposed remuneration Policy and structural changes The remuneration structure that shareholders approved in 2014 and 2015 was designed for a specific purpose, pre-dominantly to bridge a period of management transition during a time when long-term target setting was difficult. Whilst the current Policy has been effective, given the Company’s development since 2015, the Committee now feels comfortable setting long-term targets that would allow a more traditional remuneration model to be operated. The role of the Committee is to ensure that the remuneration provided to our Executive Directors motivates them, aligns them with delivery of our strategy and creates shareholder value in a sustainable manner. In addition, it is our task to ensure that the remuneration received by the Executive Directors is proportionate to the performance achieved and the returns received by you as shareholders. To fulfil our role, the Committee undertook a review of the Company’s remuneration Policy (‘Policy’) during the year and consulted with shareholders on proposed changes to the current Policy. Details of the proposed Policy are set out in this report and I look forward to your support for the changes at the 2017 AGM. Key 2017 remuneration outcomes This year has been another successful one for Trifast. At Actual Exchange Rates (AER), our revenue grew by 15.6%, we delivered growth of 28.3% in underlying diluted Earnings per Share and ROCE remained extremely healthy at 19.9%. In addition, over the past year, our shareholders have benefitted from an increase in Total Shareholder Return (‘TSR’) of c.70%, a substantial outperformance against the FTSE Small Cap and industry benchmarks. Our Annual Report sets out the key areas where we have made substantial progress against our strategic priorities with some key highlights including the successful integration of Kuhlmann into our business, opening a new distribution and technical centre in Barcelona and the continuing enhancement of our manufacturing capacity. It is now nearly two years since Mark Belton moved into the role of Chief Executive Officer with Clare Foster joining as Chief Financial Officer. Any management change involves significant risks, but the Committee is delighted with the successful transition that has taken place and already seen Mark and Clare playing key roles in Trifast’s success. They, together with the continued support of Malcolm Diamond, Geoff Budd and Glenda Roberts, are overseeing a significant transformation of the business which will further benefit shareholders in the years to come. 70 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017As you will be aware, with effect from 1 April 2017, Malcolm Diamond transitioned from Executive Chairman to Non-Executive Chairman. In light of changes to the composition of the Executive team and the shift of responsibilities of Executive Directors, the Committee decided it was an appropriate time to review and adjust base salary levels. In line with the current and proposed Policy, set out in this report, with effect from 1 April 2017 the Committee will make the following salary increases: • CEO: Increase base salary from £250,000 to £300,000 • CFO: Increase base salary from £200,000 to £230,000 • Other Executive Directors: Increase base salary from £200,000 to £210,000 In addition, given Malcolm Diamond’s transition from Executive to Non-Executive Chairman, the Committee has determined that his fee will reduce from £200,000 to £150,000 from 1 April 2017 with a further reduction to £125,000 from 1 April 2018. This reduction reflects the Chairman’s phased reduced time commitment to the role. The Committee considered whether base salary increases should be staged over a number of years given their impact on the overall remuneration package. However, the Committee felt that given strong individual and corporate performance a one-time immediate increase was appropriate. There will be no change to our Policy in relation to Non-Executive Director fees. The Board reviewed Non-Executive Director fees which have been unchanged for three years and compared current fee levels to levels in organisations of comparable size and complexity. In order to ensure Non-Executive Director fees reflect the increasing level of responsibility and time commitment as the Company grows, fees paid from 1 April 2017 will be based on a maximum of the following: • NED base fee: £42,000 • SID fee: £6,000 • Audit / Remuneration Committee Chair: £8,000 • Audit / Remuneration Committee member: £5,000 The Committee also acknowledges that a number of shareholders voted against the current Policy and its implementation given its focus on the short-term. We take shareholder feedback seriously and the changes to our remuneration Policy have been designed to reflect these views. The Committee also consulted, more recently, with its major shareholders regarding the introduction of the new Policy. Those shareholders will note that we have responded to many of the issues raised and made changes, highlighted in this statement, in an effort to ensure that we adopt a Policy that has the support of a large majority of our shareholders. We are grateful for the time shareholders have taken to review and comment on the Policy we are proposing and will continue to engage with our shareholders on remuneration matters and take account of those views. Overall, the Policy has been constructed to provide management with a remuneration opportunity that is competitive against companies of a similar size and complexity, but with a greater emphasis on the variable elements of the package than those peers. Broadly, the Committee targeted lower quartile salaries combined with an above median incentive opportunity to provide a total remuneration opportunity at or approaching the median. As such, management will be well rewarded if material long-term sustainable value is delivered for shareholders but total remuneration is limited to the fixed elements of the package if performance falls below expectations. The significant changes from the current Policy are in relation to the simplification of the annual bonus and the introduction of a traditional long-term incentive arrangement with a three year performance period. The new Policy has been specifically designed to meet the following objectives: • Alignment with the long-term business strategy during the Group’s next stage of development • Focus on the key performance metrics that drive shareholder value creation • Motivate, retain and attract top talent from a competitive talent pool • Align the interests of executives and shareholders • Be in line with UK corporate governance best practice Further details of the new Policy can be found on the pages hereafter in the Directors’ Policy Report but outlined below are the key highlights. Base salary and Non-Executive Director fees The Committee determined that Executive Director base salaries will not usually be increased by a higher percentage than the average annual increase in salaries for UK employees. Larger increases may be awarded if, subject to performance, there is i) a material change in the role and responsibilities of the Executive Director, or ii) an Executive Director has been appointed at below the market level to reflect experience, or iii) an Executive Director has been promoted internally and their salary is below the market level. 71 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT Looking Ahead The company has had a number of years of successfully implementing its strategy, evidenced by our record EPS performance as well as value created for shareholders. We remain committed to the delivery of further growth from both organic and acquisitive sources. Furthermore, the Committee believes that a key reason for the successes of the business has been having the right management team in place. We want this four strong Executive team to continue into the next stage of growth for the Company whilst operating a Policy that is fit for purpose. In order to do so we look forward to your support in approving our proposals at July’s AGM. Jonathan Shearman Chairman of the Remuneration Committee 12 June 2017 Annual Bonus The annual bonus is being simplified. The primary performance condition will remain as Earnings per Share (“EPS”) growth (75% of opportunity) alongside the introduction of a range of Strategic and Operational measures (25%) such as financial and operational excellence, growth strategy, customer satisfaction, people and risk mitigation. At least 40% of the Strategic and Operational measures will be linked to quantitative metrics and for FY2018 the Committee has determined to assess 10% of the total bonus opportunity against a ROCE target to ensure earnings growth is of a quality nature. These measures have been introduced to provide a holistic assessment of corporate performance. EPS will be measured on an organic growth basis only i.e. the impact of acquisitions and share buybacks will be stripped out from the reported EPS figure. The maximum opportunity will be decreased to 125% of base salary (from 200%) due to the introduction of a standalone Long Term Incentive Plan. Up to 100% of base salary will be paid in cash with any bonus in excess of this being deferred into shares for three years. The deferral period was increased from two to three years based on feedback from the shareholder consultation, as was the exclusion of share buybacks in the EPS calculation. Long-Term Incentive Plan (LTIP) A more traditional long-term incentive plan is being introduced to help shift some focus towards longer-term performance. Awards under the new LTIP will vest over a three year performance period with a proportion of awards being subject to a holding period of up to two years. Awards will be subject to the satisfaction of EPS growth (70% of opportunity) and relative TSR (30%) performance conditions and the maximum annual opportunity will be 150% of base salary. A new shareholding requirement of 200% of salary will also be implemented alongside the LTIP. The LTIP has been designed to be in line with market practice in terms of structure and features stretching performance conditions which support the business strategy and therefore aligns the interests of management and shareholders. Performance conditions EPS has been chosen as the primary performance condition for the annual bonus and LTIP as the Committee feels it is the most appropriate measure of growth for Trifast over the coming Policy cycle and provides a clear line of sight for the Executive team. The weighting of EPS in the annual bonus and LTIP has been reduced in response to shareholder feedback. The Committee is comfortable that the balance of EPS, Strategic and Operational and relative TSR provides a set of measures that will drive underlying performance in the short- and long-term which will translate to absolute and relative shareholder returns. 72 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Directors’ remuneration Policy This section of the remuneration report contains details of the Policy which is being proposed at the AGM on 27 July 2017 and, if approved, will be effective from that date. As set out in the Chairman’s statement, the proposed Policy has been developed to support the business strategy in the next stage of the Company’s growth. 1) Policy tables — Executives Base Salary Purpose To provide competitive salary levels recognising the market value of the role and individual’s skills, experience and performance as well as their contributions and enable the recruitment and retention of high calibre Executives Operation Base salary is set annually on 1 April. Base salary levels are reviewed annually by the Committee, taking account of Company performance, individual performance and levels of increase for the broader Trifast employee population. The Committee also considers the impact of any base salary increase on the total remuneration package. Increases awarded each year will be set out in the statement of implementation of Policy Maximum opportunity The maximum annual salary increase will not normally exceed the average increase which applies across the wider Trifast (UK) employee population (typically inflation based) Larger increases, than the above maximum, may be awarded if subject to performance there is i) a material change in the role and responsibilities of the Executive Director, or ii) an Executive Director has been appointed at below the market level to reflect experience, or iii) an Executive Director has been promoted internally and their salary is below the market level Changes from Policy approved at the 2014/2015 AGM No substantive changes Benefits Purpose To provide market-competitive benefits Maximum opportunity Capped at the cost of providing the benefits Operation The Company provides the following ongoing benefits: Changes from Policy approved at the 2014/2015 AGM No change • Company car (or car allowance) • Private medical insurance • Permanent health insurance • Critical illness cover and life cover In addition, the Company pays additional benefits when specific business circumstances require it. For example, for a non-UK Executive the Company may consider providing specific benefits appropriate for the local market. The Company reimburses all necessary and reasonable business expenses Pension Purpose To offer market-competitive levels of pension provision Maximum opportunity 20% of base salary Operation Executive Directors participate in defined contribution pension arrangements. Executive Directors may request a pension allowance to be paid in cash, after deducting employer National Insurance costs, in place of defined contribution arrangements Changes from Policy approved at the 2014/2015 AGM No change 73 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT Annual Bonus Purpose To encourage and reward delivery of short-term organic growth alongside the execution of the Company’s annual strategic priorities in line with shareholder interests Operation and performance measures Each year Executive Directors are eligible to participate in the annual bonus. The Committee will select performance measures which it considers appropriate to support the Company’s strategic priorities and the delivery of value to shareholders. The individual targets and the weightings will be set annually by the Committee The annual bonus will reward for Earnings Per Share (EPS) growth and Strategic and Operational performance over the financial year as set out below: Maximum opportunity and timing of payments The annual bonus will be in the form of cash with a deferred share component The maximum annual award level is 125% of base salary The maximum amount that can be paid as cash is 100% of base salary and any remainder would be paid as deferred shares A deferral period of three years will apply to any portion of the annual bonus over 100% of base salary that is deferred into shares The percentage of bonus earned for differing levels of performance is: • 75% of maximum bonus opportunity will be based on • Threshold: 10% – 35% of maximum opportunity • Target: 45% – 70% of maximum opportunity • Stretch: 75% – 100% of maximum opportunity Changes from Policy approved at the 2014/2015 AGM Decoupling of short-term and long-term incentive by removing the majority of the deferred share elements and the introduction of a more traditional Long-Term Incentive Plan (discussed below) Introduction of the Strategic and Operational measures to replace personal performance which acted as a payout moderator in the previous Policy Reduced annual maximum award from 200% to 125% of base salary Change in the deferral structure, whereby Executives are required to defer any bonus over 100% of salary into shares for three years organic EPS growth • 25% of maximum bonus opportunity will be based on a basket of Strategic and Operational measures. This basket will include measures relating to the following themes: financial and operational excellence, growth strategy, customer satisfaction, people and risk mitigation. The Committee will determine the three or four most appropriate targets each year in line with the business plan and at least 40% of these measures will be based on quantifiable metrics In relation to the EPS element, the impact of current and previous year acquisitions and share buybacks will be excluded from the calculation of EPS when determining performance outcomes. The performance measures that have been selected, in the Committee’s view, most appropriately reflect the Company’s strategy to: • Generate strong and sustainable organic earnings growth for the benefit of shareholders • Focus on delivering challenging specific Strategic and Operational targets which aid in long-term value creation A financial underpin will apply such that in order for a payment under the Strategic and Operational element to be made the Company will need to achieve at least the threshold level of EPS growth Performance targets will be disclosed prospectively, unless they are deemed commercially sensitive by the Board in which case the targets and their achievement will be reported on retrospectively Malus will apply during the bonus year and the share deferral period and clawback will apply for a period of two years post bonus payment and/or share vesting Circumstances where malus and clawback could apply include misstatement of accounts, fraud or gross misconduct by the employee and / or any assessment of performance being based on error, or inaccurate or misleading information 74 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017SAYE Purpose Facilitate equity involvement for Executives and staff Maximum opportunity Annual savings limit in line with HMRC limit Changes from Policy approved at the 2014/2015 AGM No change Maximum opportunity The proposed annual award level is to grant awards of 150% of base salary. The maximum award level will be 250% of base salary and this would only be considered in certain exceptional recruitment circumstances 25% of the LTIP award will vest for threshold performance Changes from Policy approved at the 2014/2015 AGM Introduction of a new long-term incentive plan Operation The Trifast Savings Related Share Option Scheme is HMRC approved. The Scheme offers three and five year savings contracts which provide an option to purchase shares after maturity at a discount to the share price on the date the contract is taken out (the maximum discount is 20% of mid- market price) Long-Term Incentive Plan Purpose To incentivise delivery of the Group’s long-term business strategy and sustainable value for shareholders and aid in the recruitment and retention of senior Executives Operation and performance measures The Committee may make an annual award of shares to each Executive Director in the form of nil-cost options under the Long-Term Incentive Plan (LTIP). The Committee will select performance measures at the time of grant taking into account the Company’s long-term business strategy. The individual targets and the weightings will be set at grant by the Committee Performance will be measured against EPS growth and relative Total Shareholder Return (TSR) targets over three financial years as set out below: • 70% of the LTIP award will be based on EPS growth; and • 30% of the LTIP award will be based on relative TSR versus the FTSE Small Cap Index (excluding investment trusts) The EPS targets and relative TSR measures for future LTIP awards will be disclosed in the implementation of Policy section of the annual report on remuneration The EPS and relative TSR measures have been selected to reward senior Executives for the generation of strong and sustainable long-term earnings and the delivery of long-term sustainable value for the benefit of shareholders On vesting, 50% of after tax vested awards may be sold immediately. Thereafter, 25% of after tax vested awards will be subject to a one year holding period and the remaining 25% of after tax vested awards will be subject to a two year holding period Malus will apply during the vesting period and clawback will apply for a period of two years post vesting The circumstances where malus and clawback could apply include the misstatement of accounts, fraud or gross misconduct by the employee and / or any assessment of performance being based on error, or inaccurate or misleading information Shareholding Guidelines Operation A 200% of salary shareholding requirement for all Executive Directors. This is to be built up over five years and shall be effective at the start of the new Policy Changes from Policy approved at the 2014/2015 AGM Changed from minimum holding of 250,000 Trifast shares over five years The Committee will annually review the progress against achievement of these guidelines 75 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT Legacy incentive awards All unvested legacy awards granted under the deferred equity arrangement will continue to be operated as per our previous remuneration Policy approved by shareholders. 2) Illustration of remuneration Policy The chart below illustrates how applying our remuneration Policy would lead to levels of pay that vary with performance for each of the Executive Directors: £1,400,000 £1,200,000 £1,000,000 £800,000 £600,000 £400,000 £200,000 0 38% 31% 32% 25% 37% 31% 32% 25% 37% 31% 32% 24% 37% 31% 32% 24% 100% 43% 31% 100% 43% 32% 100% 44% 32% 100% 44% 32% m u m n M i i t e g r a T - n O m u m x a M i m u m n M i i t e g r a T - n O m u m x a M i m u m n M i i t e g r a T - n O m u m x a M i m u m n M i i t e g r a T - n O m u m x a M i Mark Belton Clare Foster Geoff Budd Glenda Roberts Fixed^ Annual variable Multiple reporting periods The assumptions used in determining the level of payouts are set out in the table below: Scenario Minimum On target Maximum Fixed^ Annual variable (annual bonus) Multiple reporting periods (LTIP) The value of these elements is set out in the policy table and the implementation of proposed Policy for the financial year ending 31 March 2018 in this report 0% of maximum (0% of salary) 57.5% of maximum (71.88% of salary) 100% of maximum (125% of salary) 0% of maximum (0% of salary) 62.5% of maximum (93.75% of salary) 100% of maximum (150% of salary) ^ Fixed costs include salary, pension and all benefits Notes • The minimum payout scenario assumes no incentive payout • For annual bonus, the target payout is 57.5% of maximum (this is the mid-point of the target payout range of 45% to 70% of maximum). For LTIP, the target payout is 62.5% of maximum (the mid–point between threshold vesting (25%) and maximum vesting (100%) • The maximum payout scenario assumes all incentives payout 76 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 20173) Policy on recruitment arrangements The Committee’s approach to Executive Director recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre and experience needed for the role. The remuneration package for any new recruit would be assessed following the same principles as for the current Executive Directors, as set out in the remuneration Policy table. Remuneration element Treatment under Policy Base salary, pension and other benefits The salary level will be set taking into account a number of factors including market practice, the individual’s experience and responsibilities, other pay structures within Trifast and will be consistent with the salary Policy for existing Executive Directors Annual bonus and LTIP The Executive Director shall be eligible to receive pension and other benefits in line with Trifast’s Policy The Executive Director will be eligible to participate in the Annual Bonus and LTIP as set out in the remuneration Policy table. The maximum level of variable remuneration that may be offered is 275% of base salary consistent with that of existing Executive Directors. The exceptional award limit in the LTIP allows this to be increased to 375% of base salary in the year of recruitment (where the increased award of 250% of salary is above the normal LTIP maximum of 150% of salary) Share buy-outs and replacement awards The Committee’s Policy is not to provide replacement awards as a matter of course. However, should the Committee determine that the individual circumstances of recruitment justify the provision of a replacement award, the value of any incentives that will be forfeited on cessation of a director’s previous employment will be calculated taking into account the following: • The proportion of the performance period completed on the date of the director’s cessation of employment • The performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied • Any other terms and conditions having a material effect on their value (‘lapsed value’) The Committee may then grant a replacement award up to the equivalent value as the lapsed value. The replacement award will be made in equity under 9.4.2(R) of the listing rules subject to a holding period during which cessation of employment will generally result in forfeiture and subject to the satisfaction of performance targets Other The Company may meet certain mobility costs, including relocation support, expatriate allowances, temporary living and transportation expenses as appropriate in cases where the new Executive is relocated from one work base to another Changes from previous Policy approved at the 2014/15 AGM Changes in the Recruitment Policy reflect changes to the remuneration Policy 77 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT 4) Policy on payment for loss of office – cessation of employment and Change of Control The following tables shows how the Committee would expect to treat Executive Directors on cessation of employment or upon a Change of Control. Cessation of employment Notice periods The notice periods for all Executive Directors is 12 months Circumstances of departure of Executive Directors A ‘good leaver’ is a person whose cessation of employment is for one of the following reasons: • death • • • • ill-health injury or disability redundancy retirement • employing company ceasing to be a Group company • transfer of employment to a company which is not a Group company • where the person is designated a good leaver at the discretion of the Committee A participant who is not a ‘good leaver’ is a ‘bad leaver’ Base salary, pension and other benefits Base salary and all taxable benefits (medical, private health insurance, car allowance and life assurance) are paid in lieu of notice. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct Annual bonus Unless the Remuneration Committee determines otherwise, if a participant is a ‘good leaver’, then any cash bonus payable in the year of cessation will be pro-rated for time and performance will be tested at the normal date and will be paid at the usual bonus payment date Where a participant is a ‘good leaver’ and there is a deferred bonus payable in the year of cessation, then the portion of the bonus that is required to be deferred will remain subject to deferral and will vest on the original vesting date. The Remuneration Committee may exercise discretion to pay any deferred element to a ‘good leaver’ in cash at the usual bonus payment date. Any unvested deferred shares would vest on the usual vesting date unless the Committee exercises discretion to allow for vesting at the date of cessation Participants that are ‘bad leavers’ will forfeit any cash bonus in the year of cessation and any unvested deferred shares LTIP The treatment under the LTIP is as follows: • For good leavers, unvested LTIP awards will be pro-rated for the proportion of the performance period completed on cessation • The good leaver will be given the option to have performance assessed on cessation with the award vesting at that time or waiting until the normal vesting date for performance to be assessed • Anyone who is not a good leaver will be a bad leaver. Bad leavers will forfeit all unvested awards • All leavers will remain subject to the sale restrictions under the holding period irrespective of their employment status • Where a participant ceases employment during the two year holding period, they will have six months from the date they cease employment to exercise their vested awards Some minor changes have been made to the treatment of awards for ‘good leavers’ to reflect market best practice Changes from previous Policy approved at the 2014/15 AGM 78 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Change of control Annual bonus The treatment under the annual bonus is as follows: • Cash bonus for the year in which a change of control event occurs will be pro-rated for time and performance. At the Board’s discretion, the Board may consider whether to dis-apply pro-rating for time • Unvested deferred share awards will vest on change of control In the event of an internal corporate reorganisation, the Board may decide to replace unvested deferred share awards with equivalent new awards over shares in the acquiring company LTIP The treatment under the LTIP is as follows: • Unvested awards will vest early subject to (i) the extent that any applicable performance targets have been satisfied at that time and (ii) pro-rating to reflect the reduced period of time between grant and early vesting as a proportion of the vesting period that has then elapsed • At the Board’s discretion, the Board may consider whether to dis-apply pro-rating for time In the event of an internal corporate reorganisation, the Board may decide to replace unvested awards with equivalent new awards over shares in the acquiring company 5) Discretions retained by the Remuneration Committee The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of the annual bonus and LTIP (the LTIP being operated in general terms according to the rules to be approved by shareholders). The areas where discretion is retained includes, but is not limited to, the following: • The participants • The timing of an award • The size of an award • The determination of vesting and/or payout • Discretion required when dealing with a change of control or restructuring of the Group • Determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen • Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends) These discretions, which in certain circumstances can be operated in both an upward and downward manner, are consistent with market practice and are necessary for the proper and fair operation of the plans so that they achieve their original purpose. However, it is the Committee’s Policy that there should be no element of reward for failure and any upward discretion will only be applied in exceptional circumstances. In addition, the Committee has the discretion to amend the Policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval. 6) Consideration of conditions elsewhere in the Group The remuneration Policy throughout the Company is based on ensuring that we can attract and retain the most suitable people. This principle is consistent with that applied to the development of our remuneration Policy for Executive Directors. Employee views were not specifically sought in determining this Policy and no comparison metrics were used. Salary and benefit packages are linked to personal and business performance. All employees receive additional bonus payments (as business performance allows), this together with inflation based salary reviews should ensure the company remains competitive within the employment market. All UK employees are eligible to participate in the SAYE scheme. Furthermore, senior management are also eligible to participate in a Long-Term Equity scheme. 79 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT 7) Policy table – Non-Executive Directors Non-Executive Director remuneration is not performance related and is not pensionable. The only other payments made to them are mileage allowances at HMRC rates and expenses for items incurred during the fulfilment of their roles. An explanation of the Policy with regards to Non- Executive Directors is set out in the table below: Non-Executive Directors Objective To attract and retain individuals with the requisite skills and experience to perform the role Operation Set annually on 1 April and determined by the Board. Non-Executive Directors are paid a base fee and additional fees for Committee membership and chairmanship. An additional fee is also payable to the Senior Independent Director Any increases in fees will be determined based on time commitment and take into consideration the level of responsibility Maximum opportunity The previous column sets out the factors that will be taken into consideration in determining Non-Executive Director fees Changes from Policy approved at the 2014/2015 AGM None 8) External Directorships Executive Directors are permitted to hold external directorships or offices with the prior approval of the Board. If approved, they may retain the fees payable from such appointments. No Executive Director currently holds an external directorship 9) Contracts During the year all Executive Directors had rolling service contracts, details of each Board members’ contract are detailed below: Executive Director MR Belton CL Foster GP Budd GC Roberts Non-Executive Director MM Diamond NW Warner JPD Shearman SW Mac Meekin Notice period Date of signing 26 July 2012 12 12 1 October 2015 26 July 2012 12 26 July 2012 12 Notice period Date of signing 1 April 2017 16 June 2015 26 July 2012 25 April 2013 3 3 3 3 When setting notice periods, the Committee has regard for market practice and corporate governance best practice. For new appointments the notice period for Executive Directors will be set at 12 months and at three months for Non-Executive Directors. The Director contracts are kept at the Company’s Registered office. 80 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017 Annual Report on remuneration — audited information This section of the remuneration Report contains details as to how the Company’s remuneration Policy was implemented during the year ended 31 March 2017. 1) Executive Director single figure for remuneration Annual bonus1 MM Diamond4 Prior year JC Barker (retired 30 September 2015) Prior year MR Belton5 Prior year CL Foster6 Prior year GP Budd Prior year GC Roberts Prior year Totals Prior year totals Deferred equity (face value) £000 200 200 – 125 250 225 200 100 200 190 200 180 1,050 1,020 Cash £000 200 100 – 62 250 113 200 50 200 95 200 90 1,050 510 Taxable benefits2 £000 21 21 – 9 14 14 15 7 17 16 20 18 87 85 Pensions3 £000 – – – – 47 45 36 20 34 38 36 36 153 139 Salary £000 200 200 – 125 250 225 200 100 200 190 200 180 1,050 1,020 Total £000 621 521 – 321 811 622 651 277 651 529 656 504 3,390 2,774 1. See additional details for variable pay element of remuneration below 2. Taxable benefits consisted of the cost of providing a Company car (or car allowance), private medical insurance and critical illness cover 3. Mark Belton, Clare Foster, Geoff Budd and Glenda Roberts are members of the Company’s non-contributory pension plan (2016: Mark Belton, Clare Foster, Geoff Budd and Glenda Roberts). This is an HMRC approved defined contribution scheme. The rate of Company contribution to this scheme is 20% of base salary. From 1 April 2016, the Executives were provided the option to take pension payments in the form of a cash allowance, after a deduction for Employer’s National Insurance 4. Malcolm Diamond has transitioned from Executive Chairman to Non- Executive Chairman as of 1 April 2017 5. All prior year figures for Mark Belton reflect his position as Group FD during the first half of the 2016 financial year and Group CEO thereafter 6. All prior year figures for Clare Foster reflect her appointment to the Board on 1 October 2015 as Group CFO Additional details for variable pay element of remuneration: annual bonus and deferred equity awards A portion of the annual bonus for the year ended 31 March 2017 will be paid in cash following the publication of the annual results and the remainder deferred in equity for three years. In accordance with the existing Directors’ remuneration Policy, all five Executive Directors have been awarded a cash bonus and deferred equity bonus as a percentage of base salary of 100% and 100% (2016: 50% and 100%). This is equivalent to 100% of the maximum annual bonus opportunity. The performance targets, actual performance achievement and resulting annual bonus as a percentage of the base salaries of the Executive Directors are summarised below for the year ended 31 March 2017. It should be noted that in relation to EPS, when assessing performance for the deferred equity element of the bonus scheme, to align with the new proposed Policy, the Committee ignored the unexpected EPS FX gain of 1.5 pence from currency movements following BREXIT. The maximum performance target for deferred equity was still achieved. Performance measure Group EPS† Weighting 100% Threshold performance target 10.8p Maximum cash performance target* 12.2p Maximum deferred equity performance target* 11.2p * Maximum performance EPS is stated after the deduction of any incremental bonus payments ^ As percentage of salary † Underlying diluted EPS (see note 25) Actual EPS excluding FX gain 11.3p Actual EPS 12.8p Bonus achieved^ Cash 100% Deferred 100% In the year under review, the Group’s ROCE was 19.9% which was in excess of the underpin of 12% (WACC +2%). In addition, the Committee determined that all personal performance measures were met in the year such that no reduction to the formulaic outcome of the cash bonus and deferred equity awards was required. The personal performance measures across the Executive team for the year ended 31 March 2017 included the following – establishment of a Spanish operation; increased co-operation across our manufacturing sites; better consideration of strategic risks and distribution of equity to key management below the board. 81 sluglinewww.trifast.comOur GovernanceDIRECTORS’ REMUNERATION REPORT The Committee is satisfied that individual performance outcomes for the Executive team appropriately reflected overall company performance in the year and given the level of performance against the corporate goals that individual performance outcomes were acceptable. The Committee did not exercise discretion during the year. The number of shares needed to award the face value of the deferred equity bonus is based on the average share price from 1 January to 31 March. In 2017 this was 499,900 shares and 210p (2016: 868,186 shares and 117p). 2) Non-Executive Director single figure for remuneration NW Warner Prior year1 JPD Shearman Prior year SW Mac Meekin Prior year NS Chapman – retired 16 June 2016 Prior year Totals Prior year totals Chairing of Audit or Rem Committee £000 5 4 5 5 – – – 2 10 11 Committee membership £000 5 4 5 5 5 5 – 2 15 16 Senior Independent Director £000 5 4 – – – – – 2 5 6 Core fee £000 40 32 40 40 40 40 – 19 120 131 Total £000 55 44 50 50 45 45 – 25 150 164 1. All prior year figures for Neil Warner reflect his appointment to the Board on 16 June 2015 as a Non-Executive Director 3) Payments to past Directors and for loss of office As set out in the 2016 annual report on remuneration, contractual payments were made to JC Barker until 30 June 2016. These payments were provided in relation to a consulting service agreement and made after his retirement from the Board and amounted to £67,000 (2016: £134,000). Further, as reported last year 624,465 shares vested, subject to a two year clawback period on 30 June 2016. The value of these shares as at 30 June 2016 was £861,762. 4) Statement of Directors’ shareholdings Shareholding Requirement1 250,000 250,000 250,000 250,000 250,000 N/A N/A N/A Current beneficial holding2 1,053,800 268,000 — 232,264 150,000 22,750 N/A N/A Deferred shares without performance measures Current shares which count toward shareholding requirements3 Unvested SAYE options Total of all interests at 31 March 2017 Shareholding requirement met? 692,253 712,646 180,335 643,266 594,278 N/A N/A N/A 1,746,053 980,646 180,335 875,530 744,278 22,750 N/A N/A 16,982 16,822 16,822 — 17,571 N/A N/A N/A 1,763,035 997,468 197,157 875,530 761,849 22,750 N/A N/A Yes Yes No Yes Yes N/A N/A N/A Executive Directors Malcolm Diamond Mark Belton Clare Foster Geoff Budd Glenda Roberts Non-Executive Directors Neil Warner Jonathan Shearman Scott Mac Meekin 1. By 31 March 2019 Including options exercised in the year 2. 3. Total of current beneficial holding and deferred equity awards subject to continued employment only 82 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Deferred equity bonus shares: Name Malcolm Diamond Mark Belton Clare Foster1 Geoff Budd Glenda Roberts 2014 2015 2016 2017 Total Number of shares 234,568 209,877 — 203,704 172,840 Face value (£) 190,000 170,000 — 165,000 140,000 Number of shares 192,233 192,233 — 182,622 173,010 Face value (£) 200,000 200,000 — 190,000 180,000 Number of shares 170,233 191,512 85,116 161,721 153,209 Face value (£) 200,000 225,000 100,000 190,000 180,000 Number of shares 95,219 119,024 95,219 95,219 95,219 Face value (£) 200,000 250,000 200,000 200,000 200,000 Number of shares 692,253 712,646 180,335 643,266 594,278 Face value (£) 790,000 845,000 300,000 745,000 700,000 * Outside of the malus and clawback noted in our existing Executive Director remuneration Policy, the deferred equity bonus shares have no further performance measures attached once awarded. A service condition of three years, with a good leaver clause applying 1. appointed 1 October 2015 Historic long term incentive awards The options that were agreed with shareholders and granted on the change of management in 2009, requiring a three month average share price greater than 51p, combined with a ROCE in excess of 10%, vested during the year ended 31 March 2013. None of the options granted to the Board remain outstanding at 31 March 2017 (2016: 2,000,000). 2009 share options: Name Executive Directors Malcolm Diamond ^ Excluding SAYE plans (see previous table) Outstanding at 1 April 2016 Options exercised^ Outstanding at 31 March 2017 1,000,000 (1,000,000) – No other Executive or Non-Executive Directors have outstanding options under the 2009 share option scheme. The aggregate gains made on exercising share options in the year totalled £2,030,000 (2016: £nil). There have been no changes in the interests of any Directors between 31 March 2017 and 13 June 2017. Annual report on remuneration — Unaudited information 5) Performance graph The graph below sets out the Total Shareholder Return performance of the Company compared to the FTSE Small Cap Index and FTSE All-Share Industrial Engineering Index over an eight year period from 31 March 2009. The Remuneration Committee believes it is appropriate to monitor the Company’s performance against these indices as the Company is a constituent of both. Total Shareholder Return from 31 March 2009 x e d n i R S T 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Trifast plc FTSE Small Cap Index FTSE All-Share Industrial Engineering Index 83 sluglinewww.trifast.comOur Governance DIRECTORS’ REMUNERATION REPORT 6) Performance and pay The table below shows the single figure remuneration and levels of bonus and equity payouts for the Group CEO during the past eight years: Year 2017 2016 2015 2014 2013 2012 2011 2010 Total remuneration £000 811 641† 766 643 1,263 327 265 176 Annual cash bonus payout against maximum 100% 50% 100% 80% 30% 35% 45% N/A* Equity award payout against maximum 100% 100% 100% 100% 100%* N/A* N/A* N/A* * This was a year considered as part of the performance period for the 2009 option scheme † Includes a full year of CEO remuneration; including remuneration paid to JC Barker for 1 April 2015 to 30 September 2015 and remuneration for MR Belton from 1 October 2015 to 31 March 2016 7) Percentage change in CEO remuneration The table below compares the percentage increase in the CEO’s total pay (excluding pension) with that of the UK division which is the most appropriate allowing a consistent tax regime and inflationary environment. In both cases, salaries are reviewed annually in April: Group CEO* Mark Belton UK employees Salary Taxable benefits Annual bonus — cash Annual bonus — deferred Salary Taxable benefits Annual bonus 2017 £000 250 14 250 250 10,565 457 1,058 2016 £000 250 16 125 250 10,036 362 918 Change 0% -13% 100% 0% 5.3% 26.2% 15.3% * The calculation for 2016 reflects the change in Group CEO as follows: Jim Barker – 1 April 2015 to 30 September 2015 and Mark Belton – 1 October 2015 to 31 March 2016 8) Relative importance of spend on pay The following table shows the relative spend on pay during the past two financial years when compared to other disbursements from profit: Dividend distributions Group spend on pay (including Directors) Other payroll costs (including bonus) Disbursements from profit during year to 31 March 2017 £3.31m £26.00m £9.48m Disbursements from profit during year to 31 March 2016 £2.44m £23.74m £7.78m Change 35.7% 9.5% 21.9% 9) Implementation of proposed Policy for the financial year ending 31 March 2018 The remuneration Policy’s implementation (proposed and subject to shareholder approval at the 2017 AGM) for the forthcoming year is summarised as follows: Element Policy The main elements of Director remuneration are: Base salaries/total fees effective 1 April 2017 are as follows: Mark Belton (Chief Executive Officer) Clare Foster (Chief Financial Officer) Geoff Budd (Commercial Director & European Managing Director) Glenda Roberts (Group Sales Director) Malcolm Diamond (Non-Executive Chairman) Neil Warner (Non-Executive Director) Jonathan Shearman (Non-Executive Director) Scott Mac Meekin (Non-Executive Director) — £300,000 — £230,000 — £210,000 — £210,000 — £150,000 — £60,000 — £55,000 — £50,000 Structure 84 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017Element Policy Structure Annual bonus: • Maximum opportunity: 125% of base salary for each of the Executive Directors. Any bonus award above 100% of base salary will be deferred into Trifast shares for three years • Performance measures: 75% of maximum bonus opportunity will be based on organic EPS growth, and 25% of maximum bonus opportunity based on a range of Strategic and Operational measures • 40% of the Strategic and Operational measures will be linked to a minimum ROCE target • A financial underpin will apply such that in order for a payment under the Strategic and Operational element the Company will need to achieve at least the threshold level of organic EPS growth set out below • The organic underlying diluted EPS growth targets will be as follows: — 5% organic EPS growth for threshold payout — 7.5% organic EPS growth for target payout — 10% organic EPS growth for maximum payout — Straight-line in between these performance levels In relation to organic EPS growth, the impact of current and previous year acquisitions and share buybacks will be excluded from the calculation of EPS when determining performance outcomes • • The Committee has established four Strategic and Operational measures for FY2018. Details are included below. Full disclosure of the measures, the targets and their achievement will be provided in the FY2018 Directors remuneration report: — ROCE: minimum of 15% — Growth strategy: establish fully functional acquisition team — Customer satisfaction: commercially sensitive — Risk mitigation: commercially sensitive The table below sets out the percentage of the overall maximum bonus payable at each performance level. Performance Level Threshold Target Maximum Threshold to maximum % of maximum bonus opportunity achieved Strategic & Operational 0%–25% 0%–25% 0%–25% Straight line vesting between Threshold & Target and Target & Maximum Total 10%–35% 45%–70% 75%–100% EPS 10% 45% 75% Long term incentive plan • Annual award of 150% of base salary for each of the Executive Directors • Performance measures: 70% of opportunity will be based on Underlying diluted Earnings Per Share growth, and 30% of opportunity based on a relative TSR versus the FTSE Small Cap Index (excluding investment trusts) • The performance targets will be as follows: Vesting % of maximum opportunity achieved Below threshold (0%) Threshold (25%) Maximum (100%) Threshold to maximum EPS growth p.a. Below 5% 5% 15% Performance required Relative TSR* Below FTSE Small Cap Index (excluding investment trusts) Equal to FTSE Small Cap Index (excluding investment trusts) 8% p.a. outperformance of FTSE Small Cap Index (excluding investment trusts) Straight line vesting between Thresholds & Maximums * TSR growth for Trifast and the FTSE Small Cap Index (excluding investment trusts) will be measured using a three month average prior to the start and the end of the three year performance period • The Remuneration Committee wishes to ensure a fair approach when assessing the impact of unexpected FX movements (translation) as a result of Brexit for LTIP awards granted in the financial year ending 31 March 2018 • As a result, the Committee will offset the financial year ended 31 March 2017 EPS FX gain of 1.5 pence through a reduction of the base year EPS to the extent to which these gains have reversed over the performance period Pension and Benefits Pensions and benefits will be provided in line with the remuneration Policy for Executive Directors. Non-Executive Director fees effective 1 April 2017 are based on a maximum of the following benchmarking guidance: • Base fee: £42,000 • SID fee: £6,000 • Audit / Remuneration Committee Chair: £8,000 • Audit / Remuneration Committee member: £5,000 In line with policy, Non-Executive Directors only receives fees as set out above. 85 sluglinewww.trifast.comOur Governance DIRECTORS’ REMUNERATION REPORT 10) Functioning of Remuneration Committee The role of the Committee is to ensure that the remuneration arrangements for Executive Directors provide them with the motivation to deliver our strategy and create shareholder value in a sustainable manner. In addition, it is our task to ensure that the remuneration received by the Executive Directors is proportionate to the performance achieved and the returns received by you as shareholders. To fulfil our role, the Committee undertook a review of the Company’s remuneration Policy (’Policy’) during the year and consulted with shareholders on proposed changes to the current Policy. The Committee is composed entirely of Non-Executive Directors. Members have no day-to-day involvement in the running of the business. No Executive Director sits on the Committee. The Remuneration Committee is formally constituted with written Terms of Reference. A copy of the Terms of Reference is available to shareholders by writing to the Company Secretary, whose details are set out on the inside back cover of this publication. Alongside numerous conference calls and meetings with advisors, the Committee had three formal meetings during the year. All members of the Committee attended each of these meetings. On most occasions, the Executive Chairman, CEO and CFO were invited to attend to ensure the Committee was in possession of all the relevant facts. During these meetings the Committee initially confirmed the final remuneration outcome for the year to 31 March 2016, considered any appropriate changes and targets for the year to 31 March 2017 and then the structure of the newly proposed Policy, including reflecting on shareholder feedback. During the year the Committee received independent advice from PwC in relation to the remuneration Policy review. The fees paid by the Company to PwC for services to the Committee during the financial year was £38,950 (excl. VAT). The Group also retains PwC with regard to taxation services and consulting services in the ordinary course of business of Trifast. The Committee believes that this does not create a conflict of interest and the advice they receive is independent and objective. PwC is a signatory to the Remuneration Consultants’ Code of Conduct which requires its advice to be objective and impartial. The Committee consults with the Company Secretary regarding issues on areas of remuneration and Corporate Governance. With regard to senior Executives in the Company (excluding Board Directors), the Committee also takes advice from the Executive Board. Jonathan Shearman (Chairman) Neil Warner Scott Mac Meekin Attendance in 2016/2017 3 3 3 Effective 1 April 2017 and in line with the Committee’s Terms of Reference, Malcolm Diamond was appointed a member of the Committee. 11) Statement of AGM voting The Group is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The Committee acknowledges that a number of shareholders voted against the current Policy given its focus on the short-term. We take shareholder feedback seriously and the changes to our remuneration Policy have been designed to reflect these views. The Committee also consulted, more recently, with its major shareholders regarding the introduction of a new Policy. Those shareholders will note that we have responded to many of the issues raised during the consultation and made changes which are highlighted in this Report. We are grateful for the time shareholders have taken to review and comment on the Policy and we will continue to engage with our shareholders on remuneration matters and take account of those views. The table below shows the actual voting on the 2016 remuneration report at the AGM held on 27 July 2016: 2016 remuneration report Votes for 75,225,941 % 98.4 Votes against 1,183,970 % 1.6% Votes withheld 3,194 The following table sets out actual voting in respect of the approval of the 2015 remuneration Policy at the AGM held on 16 September 2015: 2015 remuneration Policy Votes for 53,684,927 Votes against 13,288,674 % 80.2 % 19.8 Votes withheld 1,828,689 This Report was approved by the Board of Directors and signed on its behalf by: Jonathan Shearman Chairman of the Remuneration Committee 12 June 2017 86 sluglineHOLDING THE WORLD TOGETHERTrifast plc Annual Report 2017STATEMENT OF DIRECTORS’ RESPONSIBILITIES Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and regulations. Responsibility statement of the directors in respect of the annual financial report We confirm that to the best of our knowledge: Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis. • • Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and the Directors’ Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. • we consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy. • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. On behalf of the Board Clare Foster Chief Financial Officer 12 June 2017 The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 87 sluglinewww.trifast.comOur GovernancesluglineOUR FINANCIALS Independent auditors’ report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of changes in equity Company statement of changes in equity Statements of financial position Statements of cash flows Notes to the financial statements 91 95 96 97 98 99 100 101 sluglinesluglineIndependent auditor’s report to the members of Trifast plc only Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified We have audited the financial statements of Trifast plc for the year ended 31 March 2017 set out on pages 95 to 139. In our opinion: — the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2017 and of the group’s profit for the year then ended; — the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); — the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and — the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation. Overview Materiality: group financial statements as a whole Coverage £0.89m (2016: £0.7m) 5% (2016: 5%) of normalised profit before tax 100% (2016: 92%) of group profit before tax Risks of material misstatement vs 2016 Recurring risks Carrying amount of inventory ◄► Recoverability of goodwill ◄► 91 sluglineOur Financials2. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our audit, in decreasing order of audit significance, were as follows (unchanged from 2016): 3. Our application of materiality and an overview of the scope of our audit Normalised group profit before tax £17.9m (2016: £14.2m) The risk Our response Carrying amount of inventory (£41.9 million; 2016: £39.4m) Refer to page 67 (Audit Committee Report), page 104 (accounting policy) and page 119 (financial disclosures). A proportion of the group’s inventory is manufactured to meet specific customer requirements. There is a risk over the recoverability of these balances if a customer experiences financial stress or there is a demand issue with a customer’s product that includes a part manufactured by Trifast. Our audit focused on this customer- specific inventory. Recoverability of goodwill (£29.3 million; 2016: £27.4m) Refer to page 67 (Audit Committee Report), page 103 (accounting policy) and pages 114 to 116 (financial disclosures). Volatility in certain of the group’s markets has meant that recoverability of individual elements of the group’s goodwill presented a risk. In addition as assessment of recoverability is dependent on inherently uncertain forecasting it was a key judgemental area that our audit concentrated on. In particular the recoverability of goodwill at one component (PSEP) was more sensitive to changes in forecast assumptions than other components, has the lowest value of headroom in management’s base case projections and demonstrated lower headroom compared to the prior year. Our procedures included: Tests of details: — we assessed whether old and slow moving inventory is provided against in accordance with the group accounting policy and in compliance with accounting standards. We considered the estimation method applied through historical trend analysis; — we analysed customer-specific inventory balances by age and challenged the group's assumptions of the expected usage based on our knowledge and experience of the industry in which the customer operates; — we inspected a sample of service level agreements to compare customers' minimum purchase commitments to year- end inventory levels and considered any residual risk of recoverability; and Assessing transparency: — we considered the adequacy of the group's disclosures about the degree of estimation involved in arriving at the inventory provision. Our procedures included: Control design: — we tested the group's budgeting procedures upon which the forecasts are based and the principles and integrity of the group's discounted cash flow model; Benchmarking assumptions: — we compared the group's assumptions to externally derived data as well as our own assessments based on our knowledge of the client and experience of the industry in which it operates. Specifically we compared their assumptions such as projected revenue growth, profitability and discount rates, to industry norms, components’ historical performance and external data sources; Sensitivity analysis: — we performed sensitivity analyses for these key inputs and assumptions, and identified whether any cash generating units were particularly sensitive to impairment; and Assessing transparency: — we assessed whether the group's disclosures related to the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill. 92 Materiality for the group financial statements as a whole was set at £0.89 million (2016: £0.7 million), determined with reference to a benchmark of group profit before tax, normalised to exclude costs of exercise of executive share options, of £17.9 million of which it represents 5%, (2016 £14.2 million, determined with reference to group profit before tax normalised to exclude that year’s accelerated share based payment and acquisition costs, of which it represents 5%). We report to the audit committee any corrected or uncorrected misstatements exceeding £43,000 (2016: £35,000), in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the group’s 22 (2016: 21) reporting components, we subjected 10 (2016: 11) to audits for group reporting purposes. We conducted reviews of financial information (including enquiry) at a further 8 (2016: 7) non- significant components. These components were not individually significant enough to require an audit for group reporting purposes but a review was performed due to the size and risk profile of these components. The components within the scope of our work accounted for the percentages illustrated opposite. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £111,000 to £800,000 (2016: £77,000 to £650,000), having regard to the mix of size and risk profile of the Group across the components. The work on 8 of the 18 reporting components subject to audit or review (2016: 8 of the 18 reporting components subject to audit or review) was performed by component auditors and the rest by the Group team. The group team performed procedures on the items excluded from normalised group profit before tax. The Group team visited 1 (2016: 1) component location in Italy (2016: Singapore). Telephone conference meetings were also held with that component auditor and others that were not physically visited. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. Materiality £0.89m (2016: £0.7m) £0.89m Whole financial statements materiality (2016: £0.7m) £800k Range of materiality at 22 components £111k to £800k (2016: £77k to £650k) 14 14 100%* (2016 92%) 78 86 Normalised group profit before tax £43k Misstatements reported to the audit committee (2016: £35k) Group revenue Group profit before tax 13 9 100%* (2016 99%) 90 87 Group total assets 17 14 99% (2016 97%) 83 82 Key: Full scope for group audit purposes 2017 Specified risk-focused audit procedures 2017 Full scope for group audit purposes 2016 Specified risk-focused audit procedures 2016 Residual components * Rounded to nearest whole percent slugline3. Our application of materiality and an overview of the scope of our audit Materiality for the group financial statements as a whole was set at £0.89 million (2016: £0.7 million), determined with reference to a benchmark of group profit before tax, normalised to exclude costs of exercise of executive share options, of £17.9 million of which it represents 5%, (2016 £14.2 million, determined with reference to group profit before tax normalised to exclude that year’s accelerated share based payment and acquisition costs, of which it represents 5%). We report to the audit committee any corrected or uncorrected misstatements exceeding £43,000 (2016: £35,000), in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the group’s 22 (2016: 21) reporting components, we subjected 10 (2016: 11) to audits for group reporting purposes. We conducted reviews of financial information (including enquiry) at a further 8 (2016: 7) non- significant components. These components were not individually significant enough to require an audit for group reporting purposes but a review was performed due to the size and risk profile of these components. The components within the scope of our work accounted for the percentages illustrated opposite. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £111,000 to £800,000 (2016: £77,000 to £650,000), having regard to the mix of size and risk profile of the Group across the components. The work on 8 of the 18 reporting components subject to audit or review (2016: 8 of the 18 reporting components subject to audit or review) was performed by component auditors and the rest by the Group team. The group team performed procedures on the items excluded from normalised group profit before tax. The Group team visited 1 (2016: 1) component location in Italy (2016: Singapore). Telephone conference meetings were also held with that component auditor and others that were not physically visited. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. Normalised group profit before tax £17.9m (2016: £14.2m) Materiality £0.89m (2016: £0.7m) £0.89m Whole financial statements materiality (2016: £0.7m) £800k Range of materiality at 22 components £111k to £800k (2016: £77k to £650k) Normalised group profit before tax £43k Misstatements reported to the audit committee (2016: £35k) Group revenue Group profit before tax 14 14 100%* (2016 92%) 78 86 13 9 100%* (2016 99%) 90 87 Group total assets 17 14 99% (2016 97%) 83 82 Key: Full scope for group audit purposes 2017 Specified risk-focused audit procedures 2017 Full scope for group audit purposes 2016 Specified risk-focused audit procedures 2016 Residual components * Rounded to nearest whole percent 93 sluglineOur Financials4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion: — the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and — the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the financial statements. Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic Report and the Directors’ Report: — we have not identified material misstatements in those reports; and — in our opinion, those reports have been prepared in accordance with the Companies Act 2006. 5. We have nothing to report on the disclosures of principal risks Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: — the directors’ viability statement on page 50, concerning the principal risks, their management, and, based on that, the directors’ assessment and expectations of the group’s continuing in operation over the three years to 31 March 2020; or — the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting. 6. We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: — we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy; or — the Audit Committee Report does not appropriately address matters communicated by us to the audit committee. Under the Companies Act 2006 we are required to report to you if, in our opinion: — adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or — the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or — certain disclosures of directors’ remuneration specified by law are not made; or — we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: — the directors’ statements, set out on page 65, in relation to going concern and longer-term viability; and — the part of the Corporate Governance Statement on pages 64 to 65 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review. We have nothing to report in respect of the above responsibilities. Scope and responsibilities As explained more fully in the Directors’ Responsibilities Statement set out on page 87, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Mark Sheppard (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Forest Gate Brighton Road Crawley RH11 9PT 12 June 2017 94 sluglineCONSOLIDATED INCOME STATEMENT for the year ended 31 March 2017 Continuing operations Revenue Cost of sales Gross profit Other operating income Distribution expenses Administrative expenses before separately disclosed items IFRS2 charge Acquired intangible amortisation Net acquisition costs Profit on sale of fixed assets Costs on exercise of executive share options Total administrative expenses Operating profit Financial income Financial expenses Net financing costs Profit before taxation Taxation Profit for the year (attributable to equity shareholders of the Parent Company) Earnings per share Basic Diluted The notes on pages 101 to 139 form part of these financial statements Note 3 4 2, 22 2, 12 2, 32 2 2 5, 6, 7 8 8 2, 3 9 25 25 2017 £000 2016 £000 186,512 (128,495) 58,017 395 (3,964) (33,430) (1,512) (1,273) — 195 (567) (36,587) 17,861 60 (581) (521) 17,340 (4,642) 12,698 10.72p 10.40p 161,370 (113,366) 48,004 317 (3,202) (28,326) (1,687) (974) (264) — — (31,251) 13,868 60 (851) (791) 13,077 (2,852) 10,225 8.78p 8.50p 95 sluglinewww.trifast.comOur Financials CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2017 Profit for the year Other comprehensive income/(expense) for the year: Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Loss on a hedge of a net investment taken to equity Other comprehensive income recognised directly in equity Total comprehensive income recognised for the year (attributable to the equity shareholders of the Parent Company) 2017 £000 12,698 8,486 (2,155) 6,331 2016 £000 10,225 4,764 (2,537) 2,227 19,029 12,452 96 sluglineTrifast plc Annual Report 2017CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2017 Balance at 31 March 2016 Total comprehensive income for the year: Profit for the year Other comprehensive income for the year Total comprehensive income recognised for the year Issue of share capital (note 24) Share based payment transactions (including tax) Dividends (note 24) Total transactions with owners Balance at 31 March 2017 Share capital £000 5,837 Share premium £000 21,161 — — — 177 — — 177 6,014 — — — 217 — — 217 21,378 Translation reserve £000 8,569 — 6,331 6,331 — — — — 14,900 Retained earnings £000 48,183 12,698 — 12,698 (53) 1,888 (3,310) (1,475) 59,406 Total equity £000 83,750 12,698 6,331 19,029 341 1,888 (3,310) (1,081) 101,698 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2016 Balance at 31 March 2015 Total comprehensive income for the year: Profit for the year Other comprehensive income for the year Total comprehensive income recognised for the year Issue of share capital (note 24) Share based payment transactions (including tax) Dividends (note 24) Total transactions with owners Balance at 31 March 2016 Share capital £000 5,809 Share premium £000 20,978 Translation reserve £000 6,342 Retained earnings £000 38,551 — — — 28 — — 28 — — — 183 — — 183 — 2,227 2,227 — — — — 5,837 21,161 8,569 10,225 — 10,225 — 1,847 (2,440) (593) 48,183 Total equity £000 71,680 10,225 2,227 12,452 211 1,847 (2,440) (382) 83,750 97 sluglinewww.trifast.comOur FinancialsCOMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2017 Balance at 31 March 2016 Total comprehensive income for the year: Profit for the year Total comprehensive income recognised for the year Issue of share capital (note 24) Share based payment transactions (including tax) Dividends (note 24) Total transactions with owners Balance at 31 March 2017 Share capital £000 5,837 Share premium £000 21,161 Merger reserve £000 1,521 Retained earnings £000 16,013 — — 177 — — 177 6,014 — — 217 — — 217 — — — — — — 21,378 1,521 4,814 4,814 (53) 1,758 (3,310) (1,605) 19,222 Total equity £000 44,532 4,814 4,814 341 1,758 (3,310) (1,211) 48,135 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2016 Balance at 31 March 2015 Total comprehensive income for the year: Profit for the year Total comprehensive income recognised for the year Issue of share capital (note 24) Share based payment transactions (including tax) Dividends (note 24) Total transactions with owners Balance at 31 March 2016 Share capital £000 5,809 Share premium £000 20,978 Merger reserve £000 1,521 Retained earnings £000 5,586 Total equity £000 33,894 — — 28 — — 28 — — 183 — — 183 — — — — — — 5,837 21,161 1,521 11,068 11,068 11,068 — 1,799 (2,440) (641) 16,013 11,068 211 1,799 (2,440) (430) 44,532 98 sluglineTrifast plc Annual Report 2017STATEMENTS OF FINANCIAL POSITION at 31 March 2017 Non-current assets Property, plant and equipment Intangible assets Equity investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Bank overdraft Other interest-bearing loans and borrowings Trade and other payables Tax payable Provisions Total current liabilities Non-current liabilities Other interest-bearing loans and borrowings Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Reserves Retained earnings Total equity Note 10, 11 12, 13 14 15, 16 17 18 19, 26 3 19, 26 20, 26 21 23 20, 26 23 15, 16 3 Group Company 2017 £000 19,258 39,682 — 2,359 61,299 41,926 49,360 24,645 115,931 177,230 — 14,872 37,145 2,471 76 54,564 16,221 1,111 3,636 20,968 75,532 101,698 6,014 21,378 14,900 59,406 101,698 2016 £000 17,171 38,259 — 2,165 57,595 39,438 43,386 17,614 100,438 158,033 33 16,901 33,030 2,773 76 52,813 16,675 1,117 3,678 21,470 74,283 83,750 5,837 21,161 8,569 48,183 83,750 2017 £000 2,574 — 41,440 685 44,699 — 31,382 2,587 33,969 78,668 — 11,077 4,362 — — 15,439 14,930 — 164 15,094 30,533 48,135 6,014 21,378 1,521 19,222 48,135 The notes on pages 101 to 139 form part of these financial statements. These financial statements were approved by the Board of Directors on 12 June 2017 and were signed on its behalf by: Malcolm Diamond MBE Director Mark Belton Director 2016 £000 2,362 — 41,440 836 44,638 — 33,613 1,406 35,019 79,657 2,273 12,091 5,720 — — 20,084 14,866 — 175 15,041 35,125 44,532 5,837 21,161 1,521 16,013 44,532 99 sluglinewww.trifast.comOur FinancialsSTATEMENTS OF CASH FLOWS for the year ended 31 March 2017 Group Company Note 2017 £000 2016 £000 2017 £000 2016 £000 12,698 10,225 4,814 11,068 3,123 165 (60) 581 (184) — 1,512 4,642 22,477 (3,075) (273) 3,764 (6) 22,887 (5,136) 17,751 198 60 (1,471) (2,948) — (4,161) 341 2,236 (7,030) (6) (3,310) (581) (8,350) 5,240 17,581 1,824 24,645 2,331 (119) (60) 851 15 — 1,687 2,852 17,782 (1,360) (421) (58) (70) 15,873 (3,080) 12,793 16 91 (7,684) (2,339) — (9,916) 181 11,451 (8,969) (31) (2,440) (895) (703) 2,174 15,014 393 17,581 76 — (28) 350 — (10,814) 1,145 402 (4,055) 4,653 — (1,361) — (763) — (763) — 26 — (288) 10,814 10,552 341 2,100 (5,120) — (3,310) (346) (6,335) 3,454 (867) — 2,587 (6,676) (256) (32) 406 — (8,532) 1,224 (277) (3,075) (3,914) — (3,743) — (10,732) — (10,732) — 32 — (2) 8,532 8,562 181 9,252 (1,825) — (2,440) (419) 4,749 2,579 (3,446) — (867) Cash flows from operating activities Profit for the year Adjustments for: Depreciation, amortisation and impairment/(reversal) Unrealised foreign currency loss/(gain) Financial income Financial expense (Gain)/loss on sale of property, plant and equipment and investments Dividends received Equity settled share based payment charge Taxation charge/(credit) Operating cash inflow/(outflow) before changes in working capital and provisions Change in trade and other receivables Change in inventories Change in trade and other payables Change in provisions Cash generated from/(used in) operations Tax paid Net cash from/(used in) operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Interest received Acquisition of subsidiary, net of cash acquired 32 Acquisition of property, plant and equipment and intangibles 10, 11, 12 Dividends received Net cash (used in)/from investing activities Cash flows from financing activities Proceeds from the issue of share capital, net of acquisition Proceeds from new loan Repayment of borrowings Payment of finance lease liabilities Dividends paid Interest paid Net cash (used in)/from financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 April Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 March 24 24 19 19 100 sluglineTrifast plc Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 1 Accounting policies a) Significant accounting policies Trifast plc (‘the Company’) is a company incorporated in the United Kingdom. The registered office details are on page 147. The Consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group). The Company financial statements present information about the Company as a separate entity and not about its Group. The profit after tax for the Company is £4.8m (2016: £11.07m). Statement of compliance Both the Company financial statements and the Consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’) except as explained below: On publishing the Company financial statements here together with the Consolidated financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Consolidated and Company financial statements. b) Basis of preparation The financial statements are prepared in Sterling, rounded to the nearest thousand. They are prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the accounting policies below. The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects current and future periods. Judgements made by management in the application of Adopted IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 31. Going concern A review of the business activity and future prospects of the Group are covered in the accompanying Strategic report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are specifically described in the Business review on pages 32 to 41. Detailed information regarding the Group’s current facility levels, liquidity, credit, interest and foreign exchange risk are provided in note 26. Current trading and forecasts show that the Group will continue to be profitable and generate cash. The banking facilities and covenants that are in place provide appropriate headroom against our forecasts. Considering the current forecasts, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. c) Basis of consolidation i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to direct relevant activities of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. ii) Transactions eliminated on consolidation Intra-Group balances, and any unrealised gains and losses or income and expenses arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements. 101 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 1 Foreign currency transactions Accounting policies (continued) d) Foreign currency i) Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Sterling at average rates of exchange for the period, where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity, the translation reserve. They are released into the income statement as part of the gain or loss on disposal. e) Hedge of net investment in foreign operations The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised directly in equity in the translation reserve. The ineffective portion is recognised immediately in the income statement. The effective portion is recycled and recognised in the income statement upon disposal of the operation. f) Property, plant and equipment i) Owned assets Property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy (j)). Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 April 2004, the date of transition to Adopted IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of transition. ii) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The depreciation rates are as follows: Freehold and long leasehold buildings — 2% per annum on a straight-line basis or the period of the lease — period of the lease Short leasehold properties — 20–25% on a straight-line basis Motor vehicles Plant and machinery — 10–20% per annum on a straight-line basis Fixtures, fittings and office equipment — 10–25% per annum on a straight-line basis When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment. Where relevant, residual values are reassessed annually. iii) Leased assets The rental charges on assets held under operating leases are taken to the profit and loss account on a straight-line basis over the life of the lease. Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are accounted for as described in accounting policy (o). 102 sluglineTrifast plc Annual Report 20171 Accounting policies (continued) iv) Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. Intangible assets g) i) On business combinations All business combinations are accounted for by applying the acquisition method. In respect of business combinations that have occurred since 1 April 2004, goodwill represents the difference between the fair value of the consideration transferred and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Costs related to the acquisition, other than those associated with the issue of debt or equity securities are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. For non-equity amounts any subsequent changes to the fair value are recognised in the profit and loss. Positive goodwill arising on acquisitions is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment (see accounting policy (j)). Goodwill arising on acquisitions before 1 April 1998 was written off to reserves in the year of acquisition. Under IFRS1 and IFRS3, this goodwill will now remain eliminated against reserves. Goodwill arising on acquisitions after 1 April 1998 but before 31 March 2004 is included on the basis of its deemed cost, which represents the amortised amount recorded under UK GAAP as at 31 March 2004. The classification and accounting treatment of business combinations that occurred prior to 1 April 2004 has not been reconsidered in preparing the Group’s year- end balance sheets. Negative goodwill arising on an acquisition is recognised directly in profit or loss. ii) Other intangible assets Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (j)). Expenditure on internally generated goodwill and brands is recognised in profit or loss as an expense as incurred. iii) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. iv) Amortisation Amortisation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are tested systematically for impairment at each annual balance sheet date. The amortisation rates of other intangible assets per annum are as follows: Customer relationships — — Technology — Order backlog — Other 6.7% to 12.5% 6.7% to 10% 100% 20% to 33% h) Non-derivative financial instruments i) Investments in subsidiaries are held in the Company balance sheet at historic cost net of any impairment (see accounting policy (j)). Investments in subsidiaries 103 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 1 Accounting policies (continued) ii) Trade and other receivables Trade and other receivables are recognised initially at their fair value, and subsequently at amortised cost less impairment losses (see accounting policy (j)). iii) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents only for the purpose of the Statements of cash flows. Interest-bearing borrowings iv) Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost. v) Trade and other payables Trade and other payables are recognised initially at fair value. Subsequently they are measured at amortised cost. Inventories i) Inventories are stated at the lower of cost and net realisable value with provision being made for obsolete and slow moving items. In determining the cost of raw materials, consumables and goods purchased for resale, a first-in first-out purchase price is used and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. For work in progress and finished goods manufactured by the Group, cost is taken as production cost, which includes an appropriate proportion of attributable overheads based on normal operating capacity. Impairment j) The carrying amounts of the Group’s assets, other than inventories (see accounting policy (i)), and deferred tax assets (see accounting policy (p)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Financial assets are considered to be impaired if objective evidence indicates that one or more events has had a negative effect on the estimated future cash flows of that asset. For goodwill and other intangible assets that have an indefinite useful life, the recoverable amount is estimated at each annual balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement unless the asset is recorded at a revalued amount in which case it is treated as a revaluation decrease. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. i) Calculation of recoverable amount The recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. ii) Reversals of impairment An impairment loss in respect of goodwill is not reversed. An impairment loss on any other asset is assessed at each reporting date and is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 104 sluglineTrifast plc Annual Report 20171 Accounting policies (continued) k) Share capital i) Dividends Dividends to the Company’s shareholders are recognised as a liability and deducted from shareholders’ equity in the period in which the shareholders’ right to receive payment is established. ii) Classification of share capital issued by the Group Share capital issued by the Group is treated as equity as it is a non-derivative that confers no contractual obligations upon the Company or the Group to deliver cash or other financial assets with another party under conditions that are potentially unfavourable. l) Employee benefits i) Defined contribution plans The Group operates Defined Contribution Pension Schemes which include stakeholder pension plans. The assets of these schemes are held separately from those of the Group in independently administered funds. The amount charged against profits represents the contributions payable to the schemes in respect of the accounting period. The Group pays fixed contributions and will have no legal or constructive obligation to pay further amounts. ii) Share based payment transactions The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. The fair value of the amount payable to employees in respect of cash settled awards is recognised as an expense with a corresponding increase in liabilities over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the award. Any changes in the liability are recognised in profit or loss. Where the Company grants awards over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the share based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised in equity or liabilities depending on the method of settlement. Amounts recharged to the subsidiary are recognised as a reduction in the cost of investment in the subsidiary. iii) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal plan to terminate employment before the normal retirement date. m) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. n) Revenue Revenue from the sale of goods rendered is recognised net of VAT in the consolidated income statement when the significant risks and rewards of ownership have been transferred to the buyer. In accordance with normal practice, this will be on dispatch of goods or at the point of customer acceptance where appropriate. o) Expenses i) Operating lease payments Payments made under operating leases are recognised in the consolidated income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the consolidated income statement as an integral part of the total lease expense. 105 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 1 Accounting policies (continued) ii) Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. iii) Net financing costs Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method and interest receivable on funds invested. Interest income is recognised in the consolidated income statement as it accrues, using the effective interest method. Net finance costs also include the amortisation of arrangement fees and related costs. p) Taxation Tax on the profit or loss for the period presented comprises current and deferred tax. Tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Information as to the calculation of income tax on the profit or loss for the period presented is included in note 9. q) Operating segment reporting A segment is a distinguishable component of the Group that is engaged in providing products or services within a particular geographical economic environment whose operating results are reviewed regularly by the Group’s Chief Operating Decision Maker (the Board) in order to allocate resources and assess its performance and for which discrete financial information is available. The Group operates in a number of geographical economic environments. The Company only operates in one business segment, being the manufacture and logistical supply of industrial fasteners and category ‘C’ components. r) Financial guarantee contracts Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. s) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options and deferred equity awards granted to employees. 106 sluglineTrifast plc Annual Report 20171 Accounting policies (continued) t) Underlying measure of profits and losses The Group believes that underlying operating profit and underlying profit before tax provide additional guidance to statutory measures to help understand the underlying performance of the business during the financial period. The term ‘underlying’ is not defined under Adopted IFRS. It is a measure that is used by management to assess the underlying performance of the business internally and is not intended to be a substitute measure for Adopted IFRSs’ GAAP measures. The Group defines these underlying measures as follows: Underlying profit before tax is profit before taxation and separately disclosed items (see note 2). Underlying profit after tax is profit after taxation but before separately disclosed items (see note 2) and is used in the calculation of underlying earnings per share. Underlying operating and segment results (see note 3) are operating and segment profit before separately disclosed items. It should be noted that the definitions of underlying items being used in these financial statements are those used by the Group and may not be comparable with the term ’underlying’ as defined by other companies within the same sector or elsewhere. Separately disclosed items are included within the income statement caption to which they relate. u) Separately disclosed items (see note 2) Separately disclosed items are those significant items which in management’s judgement should be highlighted by virtue of their size or incidence to enable a full understanding of the Group’s financial performance. v) Adopted IFRS not yet applied The following Adopted IFRSs have been issued but have not been applied in these financial statements. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated: • IFRS 9 Financial Instruments (effective date 1 January 2018) • IFRS 15 Revenue from Contracts with Customers (effective date 1 January 2018) IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. This means that it will be effective for the year ending 31 March 2019 for Trifast. The Group is currently performing an assessment of the potential impact of the adoption but do not anticipate it being material. • IFRS 16 Leases (effective date 1 January 2019) IFRS 16 introduces a single, on-balance sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. This will be effective for Trifast in the year ending 31 March 2020. The Group plans to perform an assessment of the impact of IFRS 16 on the financial statements during the current financial year. Given the value of the Group’s operating lease commitments, it is expected it will have a material impact on the values of gross assets and gross liabilities recognised in the financial statements. 107 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 2 Underlying profit before tax and separately disclosed items Underlying profit before tax Separately disclosed items within administrative expenses IFRS2 share based payment charge Acquired intangible amortisation Net acquisition costs Profit on sale of fixed assets Costs on exercise of executive share options Profit before tax Underlying EBITDA Separately disclosed items within administrative expenses IFRS2 share based payment charge Net acquisition costs Profit on sale of fixed assets Costs on exercise of executive share options EBITDA Acquired intangible amortisation Depreciation and non-acquired amortisation Operating profit Note 22 12 32 Note 22 32 2017 £000 20,497 (1,512) (1,273) — 195 (567) 17,340 2017 £000 22,868 (1,512) — 195 (567) 20,984 (1,273) (1,850) 17,861 2016 £000 16,002 (1,687) (974) (264) — — 13,077 2016 £000 18,150 (1,687) (264) — — 16,199 (974) (1,357) 13,868 There were no separately disclosed items in 2017 (2016: £nil) other than the amounts detailed above. During the period the IFRS2 charge decreased slightly due to the acceleration in the prior year of the 2014, 2015 and 2016 Deferred Equity Bonus charges for retiring Directors, offset by a charge for the 2017 Deferred Equity Bonus scheme for Directors and the addition of a new Deferred Bonus Award scheme for senior managers. £1.1m (2016: £1.6m) relates to the Deferred Equity Bonus scheme for Directors of which £0.1m (2016: £0.8m) relates to retiring Directors. £0.3m (2016: £nil) represents the charge for the Deferred Bonus Award scheme for senior managers. The remaining £0.1m (2016: £0.1m) relates to the SAYE scheme. The increase in the acquired intangible amortisation charge is primarily due to the acquisition of Kuhlmann in the prior year now having a full year effect. During the year the remaining 2m options granted under the 2009 executive share option scheme were exercised. The Company incurred £0.6m of employer’s National Insurance in relation to these exercises and the acceleration of the 2014, 2015 and 2016 Deferred Equity Bonus awards. Obsolete plant and machinery was sold in our Italian manufacturing company Viteria Italia Centrale. The profit recorded on this sale was £0.2m. Management feel it is appropriate to remove the one off costs and certain non-trading items discussed above to better allow the reader of the accounts to understand the underlying performance of the Group. Further reconciliations of underlying measures to GAAP measures can be found in note 34. 108 sluglineTrifast plc Annual Report 2017 3 Operating segmental analysis Segment information, as discussed in note 1 (q), is presented in the consolidated financial statements in respect of the Group’s geographical segments. This reflects the Group’s management and internal reporting structure, and the operating basis on which individual operations are reviewed by the Chief Operating Decision Maker (the Board). Performance is measured based on each segment’s underlying profit before finance costs and income tax as included in the internal management reports that are reviewed by the Chief Operating Decision Maker. This is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within the industry. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Goodwill and intangible assets acquired on business combinations are included in the region to which they relate. Geographical operating segments The Group is comprised of the following main geographical operating segments: — UK — Europe: includes Norway, Sweden, Hungary, Ireland, Holland, Italy, Germany, Spain and Poland — USA: includes USA and Mexico — Asia: includes Malaysia, China, Singapore, Taiwan, Thailand and India In presenting information on the basis of geographical operating segments, segment revenue and segment assets are based on the geographical location of our entities across the world, and are consolidated into the four distinct geographical regions, which the Board use to monitor and assess the Group. March 2017 Revenue Revenue from external customers Inter segment revenue Total revenue Underlying operating result Net financing costs Underlying segment result Separately disclosed items (see note 2) Profit before tax Specific disclosure items Depreciation and amortisation Assets and liabilities Segment assets Segment liabilities UK £000 Europe £000 66,825 2,443 69,268 6,538 (145) 6,393 67,231 613 67,844 9,818 (73) 9,745 USA £000 5,900 123 6,023 334 — 334 Asia £000 46,556 7,262 53,818 8,005 20 8,025 Common costs £000 — — — (3,677) (323) (4,000) Total £000 186,512 10,441 196,953 21,018 (521) 20,497 (3,157) 17,340 423 1,626 25 973 76 3,123 40,348 (19,535) 68,289 (13,689) 3,742 (294) 58,876 (11,581) 5,975 (30,433) 177,230 (75,532) 109 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 3 Operating segmental analysis (continued) March 2016 Revenue Revenue from external customers Inter segment revenue Total revenue Underlying operating result Net financing costs Underlying segment result Separately disclosed items (see note 2) Profit before tax Specific disclosure items Depreciation and amortisation Assets and liabilities Segment assets Segment liabilities UK^ £000 64,156 2,057 66,213 6,172 (278) 5,894 Europe £000 54,030 341 54,371 6,880 (107) 6,773 USA £000 4,602 97 4,699 401 (2) 399 Asia* £000 38,582 6,276 44,858 6,730 (29) 6,701 Common costs ^ £000 — — — (3,390) (375) (3,765) Total £000 161,370 8,771 170,141 16,793 (791) 16,002 (2,925) 13,077 231 1,181 22 833 64 2,331 36,525 (15,792) 63,568 (14,952) 3,164 (385) 50,295 (9,679) 4,481 (33,475) 158,033 (74,283) ^ Including the offset of the UK overdrafts from Common costs, as allowable under financing agreements with HSBC *Historically this was stated after eliminating revenue between Asian entities. However management believe it is more appropriate to include this in the inter segment revenue number above and therefore this has been restated to £6.3m from £5.8m. In FY2017 the equivalent adjustment was £0.3m There were no material differences in Europe and USA between the external revenue based on location of the entities and the location of the customers. Of the UK external revenue £11.3m (2016: £10.4m) was sold into the European market. Of the Asian external revenue, £4.6m (2016: £3.9m) was sold into the American market and £5.5m (2016: £5.9m) sold into the European market. Revenue is derived solely from the manufacture and logistical supply of industrial fasteners and category ‘C’ components. 4 Other operating income Rental income received from freehold properties Other income 5 Expenses and auditor’s remuneration Included in profit for the year are the following: Depreciation and non-acquired amortisation Amortisation of acquired intangibles Operating lease expense Net foreign exchange gain (Gain)/loss on disposal of fixed assets Auditor’s remuneration: Audit of these financial statements Audit of financial statements of subsidiaries pursuant to legislation Taxation compliance services Other assurance services Other services relating to transaction services 110 Note 10,12 12 27 2017 £000 152 243 395 2017 £000 1,850 1,273 2,529 (46) (184) 2017 £000 38 222 15 28 — 2016 £000 139 178 317 2016 £000 1,357 974 2,507 (661) 15 2016 £000 41 208 15 27 60 sluglineTrifast plc Annual Report 20176 Staff numbers and costs The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows: Office and management Manufacturing Sales Distribution The aggregate payroll costs of these people were as follows: Wages and salaries (including bonus) Share based payments Social security costs Contributions to defined contribution plans (see note 22) 7 Directors’ emoluments Directors’ emoluments Deferred equity (face value) Company contributions to money purchase pension plans Pension cash payments Group Number of employees 2017 107 318 182 597 1,204 2017 £000 30,873 1,512 2,811 1,795 36,991 2017 £000 2,337 1,050 107 46 3,540 Group 2016 109 307 180 589 1,185 2016 £000 27,514 1,687 2,400 1,613 33,214 2016 £000 1,779 1,020 139 — 2,938 The emoluments of individual Directors are shown in the Remuneration Report on pages 70 to 86. The aggregate of emoluments of the highest paid Director was £0.81m (2016: £0.62m), which included deferred equity (at face value) of £0.25m (2016: £0.23m), Company pension contributions of £0.03m (2016: £0.05m) made to a money purchase scheme on his behalf and pension cash payments of £0.02m (2016: £nil). During the year, the highest paid Director exercised 18,000 SAYE share options (2016: nil). The annual IFRS2 charge relating to Board deferred equity bonuses given in 2014, 2015, 2016 and 2017 was £1.13m (2016: £1.22m). The highest paid Director’s element of this charge was £0.23m (2016: £0.27m). Retirement benefits are accruing to the following number of Directors under money purchase schemes The number of Directors who exercised share options was See pages 70 to 86 of the Remuneration Report for more details. Directors’ rights to subscribe for shares in the Company are also set out in the Remuneration report. 8 Financial income and expense Financial income Interest income on financial assets Financial expenses Interest payable on bank loans and hire purchase liabilities Number of Directors 2017 2016 4 2 4 — 2017 £000 60 581 2016 £000 60 851 111 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 9 Taxation Recognised in the income statement Current UK tax expense: Current year Adjustments for prior years Current foreign tax expense: Current year Adjustments for prior years Total current tax Deferred tax expense (note 15): Origination and reversal of temporary differences Adjustments for prior years Deferred tax income Tax in income statement Tax recognised directly in equity Current tax recognised directly in equity — IFRS2 share based tax credit Deferred tax recognised directly in equity — IFRS2 share based tax charge/(credit) Total tax recognised in equity Reconciliation of effective tax rate (‘ETR’) and tax expense Profit for the period Tax from continuing operations Profit before tax Tax using the UK corporation tax rate of 20% (2016: 20%) Tax suffered on dividends Retention tax Non-deductible expenses Tax incentives IFRS2 share option (credit)/charge Deferred tax assets not recognised Different tax rates on overseas earnings Adjustments in respect of prior years Tax rate change Total tax in income statement 2017 £000 12,698 4,642 17,340 3,468 264 102 190 (274) (1) 511 540 (180) 22 4,642 ETR % 20 2 1 1 (2) — 3 3 (1) — 27 2017 £000 520 (8) 512 4,756 (138) 4,618 5,130 (454) (34) (488) 4,642 2017 £000 (522) 130 (392) 2016 £000 10,225 2,852 13,077 2,615 133 71 223 (123) 112 72 256 (558) 51 2,852 2016 £000 554 210 764 3,052 19 3,071 3,835 (196) (787) (983) 2,852 2016 £000 (70) (90) (160) ETR % 20 2 – 2 (1) 1 – 2 (4) — 22 A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. Deferred tax has been calculated based on these enacted rates. At a consolidated level there is a provision for £1.2m (2016: £1.2m) relating to open enquiries with a tax authority. Negotiations with the tax authority are ongoing and the Group expects to settle the liability within a year. The Group has consulted with an external tax advisor to determine an appropriate amount to recognise on the balance sheet. The amount recognised is an estimate and therefore the final outcome could vary to what is provided in the financial statements. There has been no movements in the provision during the year. The amount recognised in the Company financial statements is £nil (2016: £nil). 112 sluglineTrifast plc Annual Report 201710 Property, plant and equipment — Group Land and buildings £000 Leasehold improvements £000 Plant and equipment £000 Fixtures & fittings £000 Motor vehicles £000 Cost Balance at 1 April 2015 Additions Acquisitions Disposals Effect of movements in foreign exchange Balance at 31 March 2016 Balance at 1 April 2016 Additions Disposals Effect of movements in foreign exchange Balance at 31 March 2017 Depreciation and impairment Balance at 1 April 2015 Depreciation charge for the year Acquisitions Disposals Effect of movements in foreign exchange Balance at 31 March 2016 Balance at 1 April 2016 Depreciation charge for the year Disposals Effect of movements in foreign exchange Balance at 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 15,620 93 30 — 527 16,270 16,270 319 — 911 17,500 4,197 223 3 — 230 4,653 4,653 262 — 308 5,223 11,423 11,617 12,277 888 31 — (7) 21 933 933 30 (103) 54 914 629 66 — (7) 15 703 703 65 (103) 44 709 259 230 205 23,665 1,676 — (116) 935 26,160 26,160 2,174 (792) 1,955 29,497 20,687 755 — (107) 809 22,144 22,144 947 (786) 1,607 23,912 2,978 4,016 5,585 4,857 480 233 (286) 71 5,355 5,355 349 (490) 194 5,408 3,994 269 94 (267) 56 4,146 4,146 500 (482) 146 4,310 863 1,209 1,098 556 36 22 (31) 30 613 613 31 (80) 54 618 456 44 16 (28) 26 514 514 47 (80) 44 525 100 99 93 Total £000 45,586 2,316 285 (440) 1,584 49,331 49,331 2,903 (1,465) 3,168 53,937 29,963 1,357 113 (409) 1,136 32,160 32,160 1,821 (1,451) 2,149 34,679 15,623 17,171 19,258 Included in the net book value of land and buildings is £10.85m (2016: £10.30m) of freehold land and buildings, and £1.43m (2016: £1.32m) of long leasehold land and buildings. 113 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 11 Property, plant and equipment — Company Cost Balance at 1 April 2015 Additions Balance at 31 March 2016 Balance at 1 April 2016 Additions Balance at 31 March 2017 Depreciation and impairment Balance at 1 April 2015 Depreciation charge for the year Balance at 31 March 2016 Balance at 1 April 2016 Depreciation charge for the year Balance at 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 Land and buildings £000 Fixtures & fittings £000 3,563 — 3,563 3,563 288 3,851 1,155 61 1,216 1,216 74 1,290 2,408 2,347 2,561 569 2 571 571 — 571 553 3 556 556 2 558 16 15 13 Total £000 4,132 2 4,134 4,134 288 4,422 1,708 64 1,772 1,772 76 1,848 2,424 2,362 2,574 Included in the net book value of land and buildings is £2.56m (2016: £2.35m) of freehold land and buildings. This is provided as security over the property loan. See note 26 for further details. 12 Intangible assets — Group Cost Balance at 1 April 2015 Acquisitions Additions Disposals Effect of movements in foreign exchange Balance at 31 March 2016 Balance at 1 April 2016 Additions Effect of movements in foreign exchange Balance at 31 March 2017 Amortisation and impairment Balance at 1 April 2015 Amortisation for the year Disposals Effect of movements in foreign exchange Balance at 31 March 2016 Balance at 1 April 2016 Amortisation for the year Disposals Effect of movements in foreign exchange Balance at 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 Goodwill £000 38,678 1,187 — — 1,597 41,462 41,462 — 2,298 43,760 13,835 — — 190 14,025 14,025 — — 414 14,439 24,843 27,437 29,321 Other £000 10,148 3,651 23 (742) 1,214 14,294 14,294 45 945 15,284 2,829 974 (742) 411 3,472 3,472 1,302 — 149 4,923 7,319 10,822 10,361 Total £000 48,826 4,838 23 (742) 2,811 55,756 55,756 45 3,243 59,044 16,664 974 (742) 601 17,497 17,497 1,302 — 563 19,362 32,162 38,259 39,682 The amortisation charge is recognised in administrative expenses in the income statement. Of the £1.30m charge in the year, £1.27m relates to amortisation on acquired intangibles. 114 sluglineTrifast plc Annual Report 201712 Intangible assets — Group (continued) Other intangible assets are made up of: • Customer relationships acquired as part of the acquisition of PSEP. The remaining amortisation period left on these assets is 6.75 years • Customer relationships, technology know-how and technology patents acquired as part of the acquisition of VIC. The average remaining amortisation period on these assets is 10.72 years (maximum 12.17 years). • Customer relationships and order backlog acquired as part of the acquisition of Kuhlmann. The average remaining amortisation period on these assets is 8.50 years. There were £nil impairments made during 2017 (2016: £nil). The following cash generating units have carrying amounts of goodwill: Special Fasteners Engineering Co. Ltd (Taiwan) TR Fastenings AB (Sweden) Lancaster Fastener Company Ltd (UK) Serco Ryan Ltd (within TR Fastenings Ltd) (UK) Power Steel and Electro-Plating Works SDN Bhd (PSEP) (Malaysia) Viterie Italia Centrale (VIC) (Italy) TR Kuhlmann GmbH (Germany) O ther 2017 £000 10,834 1,063 1,245 4,083 763 9,731 1,498 104 2016 £000 9,780 1,063 1,245 4,083 753 9,020 1,389 104 29,321 27,437 The £1.05m, £0.71m, £0.11m and £0.01m increases in the goodwill of SFE, VIC, Kuhlmann and PSEP respectively refer to foreign exchange gains as these investments are held in Singapore Dollars, Euros and Malaysian Ringits. The Group tests goodwill annually for impairment. The recoverable amount of cash generating units is determined from value in use calculations. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. In this method, the free cash flows after funding internal needs of the subject company are forecast for a finite period of four years based on actual operating results, budgets and economic market research. Beyond the finite period, a terminal (residual) value is estimated using an assumed stable cash flow figure. The values assigned to the key assumptions represent management’s assessment of future trends in the fastenings market and are based on both external and internal sources of historical data. Further information on sources of data used can be found in each description of the key assumptions below. The recoverable amount of Special Fasteners Engineering Co. Ltd (Taiwan), Viterie Italia Centrale (Italy) and Serco Ryan Ltd (within TR Fastenings Ltd) (UK) have been calculated with reference to the key assumptions shown below: Long term revenue growth rate Discount rate — post-tax Discount rate — pre-tax Terminal EBIT margin SFE VIC Serco 2017 2.0% 8.2% 9.9% 16.0% 2016 2.0% 8.8% 10.6% 16.0% 2017 2.0% 8.9% 12.4% 17.4% 2016 2.0% 9.6% 13.9% 20.0% 2017 2.0% 6.8% 8.5% 11.0% 2016 2.0% 8.2% 10.2% 9.0% The downward movement in the terminal EBIT margin for VIC has resulted largely from a revised assumption in the long term €:$ rate. This reflects more recent trends continuing for the longer term. Long term revenue growth rate Four year management plans are used for the Group’s value in use calculations. Long term growth rates into perpetuity have been determined as the lower of: • the nominal GDP rates for the country of operation • the long term compound annual growth rate in EBITDA in years six to ten estimated by management. 115 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 12 Intangible assets — Group (continued) Post-tax risk adjusted discount rate The discount rate applied to the cash flows of each of the Group’s operations is based on the Weighted Average Cost of Capital (‘WACC’) (using post-tax numbers). The cost of equity element uses the risk free rate for ten year bonds issued by the government in the respective market, adjusted for a risk premium to reflect both the increased risk of investing in equities and the systemic risk of the specific Group operating company. In making this adjustment, inputs required are the equity market risk premium (that is, the increased return required over and above a risk-free rate by an investor who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a whole. In determining the risk adjusted discount rate, management has applied an adjustment for the systemic risk to each of the Group’s operations determined using an average of the betas of comparable listed fastener distribution and manufacturing companies and, where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium that takes into consideration studies by independent economists, the average equity market risk premium over the past ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals. To calculate the pre-tax discount rate we have taken the post-tax discount rate and divided this by one minus the applicable tax rate. We consider this an appropriate approximation of the pre-tax rate. The table above discloses the discount rate on a post and pre-tax basis. This takes into account certain components such as the various discount rates reflecting different risk premiums and tax rates in the respective regions. Overall, the Board is confident that the discount rate adequately reflects the circumstances in each location and is in accordance with IAS36. Terminal EBIT margin The margins used in the value in use calculations are based on historic performance adjusted for any known or expected changes to occur to existing operations based on management plans. Key adjustments relate to known efficiency gains from increased volumes achieved in the business as well as the transactional foreign exchange impact based on forecast rates. Sensitivity to changes in assumptions The impairment test carried out on PSEP assumes a compound annual sales growth rate over the four year period cash flows are projected of 5.2%, reducing to 2.0% for the terminal year. The basis for this sales growth is a combination of new contracts that PSEP has won and additional new business that is expected to follow from fulfilling these initial contracts and further extending relationships with these multinational OEM customers. Using the assumptions above for sales growth, a terminal EBIT margin of 12.3% and a post-tax discount rate of 10.2% (pre-tax discount rate 13.5%) the recoverable amount of the CGU was estimated to be higher than its carrying amount by £1.0m. Whilst the year to 31 March 2017 has been very encouraging for PSEP, with sales growth of 6.2%, showing the outlook is improving as a result of the proactive actions the Group are taking, it is possible the estimated start of production dates for the newly awarded sales contracts could be delayed or the new follow on business might come through at lower levels than predicted. If the growth rates were to reduce to 1.5% over the four year period management projects cash flows and also in the terminal year, i.e assuming that growth falls below expected regional GDP forecasts (4.4% per the Economist Intelligence Unit), with terminal EBIT margin and discount rates remaining the same as the above, this would lead to a small impairment of c.£0.3m. In order for the unit’s recoverable amount to equal its carrying amount, in absence of any other changes, the sales growth rate would have to fall to c.2.0%. The calculation is also sensitive to budgeted EBIT margins with a break even point of c.11.0%, but as an established business with a good track record of consistent margin achievement and strong cost control, despite recent trading level fluctuations, management consider the major sensitivity to be the timing of the revenue growth. Excluding PSEP, management believe that no reasonably possible change in any of the key assumptions would cause the carrying value of any other cash generating unit to exceed its recoverable amount. 116 sluglineTrifast plc Annual Report 201713 Intangible assets — Company Cost Balance at 1 April 2015, 31 March 2016 and 31 March 2017 Amortisation and impairment Balance at 1 April 2015, 31 March 2016 and 31 March 2017 Net book value At 1 April 2015, 31 March 2016 and 31 March 2017 14 Equity investments — Company Investments in subsidiaries Cost Balance at 1 April 2015, 31 March 2016, 1 April 2016 and 31 March 2017 Provision Balance at 1 April 2015 Reversal of provision Balance at 31 March 2016 and 31 March 2017 Net book value At 1 April 2015 At 31 March 2016 At 31 March 2017 Other £000 62 62 — £000 42,585 7,885 (6,740) 1,145 34,700 41,440 41,440 Details of principal subsidiary and associate undertakings, country of registration and principal activity are included in note 33. All subsidiaries have a reporting date concurrent with Trifast plc, except TR Formac (Shanghai) Pte Ltd which has a reporting date of 31 December due to local regulatory requirements. The reversal of the provision in prior year relates to TR Fastenings Inc. An impairment review was conducted using the value in use methodology and this determined that the asset is now fully recoverable. In FY2017 the Company’s investment in it’s fully owned subsidiary TR Fastenings Inc was sold at cost to Trifast Overseas Holdings Ltd in a share for share exchange. This led to no change in the net book value of the equity investments held by the company. 117 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 15 Deferred tax assets and liabilities — Group Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Property, plant and equipment Intangible assets Inventories Provisions/accruals IFRS2 Share based payments Tax losses Tax (assets)/liabilities Tax set-off Net tax (assets)/liabilities Assets Liabilities Net 2017 £000 (81) (115) (774) (537) (835) (457) (2,799) 440 (2,359) 2016 £000 (70) (53) (737) (327) (903) (539) (2,629) 464 (2,165) 2017 £000 1,697 2,191 — 188 — — 4,076 (440) 3,636 2016 £000 1,743 2,240 — 159 — — 4,142 (464) 3,678 2017 £000 1,616 2,076 (774) (349) (835) (457) 1,277 — 1,277 2016 £000 1,673 2,187 (737) (168) (903) (539) 1,513 — 1,513 A potential £2.10m (2016: £1.62m) deferred tax asset relating to the Company’s trapped management losses was not recognised on the grounds that recovery of these losses is highly unlikely. Movement in deferred tax during the year Property, plant and equipment Intangible assets Inventories Provisions/accruals IFRS2 Share based payments Tax losses Movement in deferred tax during the prior year Property, plant and equipment Intangible assets Inventories Provisions/accruals IFRS2 Share based payments Tax losses 1 April 2016 £000 1,673 2,187 (737) (168) (903) (539) 1,513 Recognised in income £000 (135) Recognised in equity^ £000 78 (270) 15 (188) (62) 152 (488) 159 (52) 7 130 (70) 252 31 March 2017 £000 1,616 2,076 (774) (349) (835) (457) 1,277 1 April 2015 £000 Recognised in income £000 Recognised in equity^ £000 31 March 2016 £000 1,522 2,274 (571) (143) (649) (53) 2,380 92 (259) (155) (30) (164) (467) (983) 59 172 (11) 5 (90) (19) 116 1,673 2,187 (737) (168) (903) (539) 1,513 ^ Amounts recognised in equity include the deferred tax on IFRS2 share based payments and the equity element of foreign exchange differences taken to reserves 118 sluglineTrifast plc Annual Report 201716 Deferred tax assets and liabilities — Company Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Property, plant and equipment Provisions/accruals IFRS2 Share based payments Tax (assets)/liabilities Assets Liabilities Net 2017 £000 — (1) (684) (685) 2016 £000 — (39) (797) (836) 2017 £000 164 — — 164 2016 £000 175 — — 175 2017 £000 164 (1) (684) (521) 2016 £000 175 (39) (797) (661) A potential £2.10m (2016: £1.62m) deferred tax asset relating to the Company’s trapped management losses was not recognised on the grounds that recovery of these losses is uncertain. Movement in deferred tax during the year Property, plant and equipment Provisions/accruals IFRS2 Share based payments Movement in deferred tax during the prior year Property, plant and equipment Provisions/accruals IFRS2 Share based payments 17 Inventories — Group Raw materials and consumables Work in progress Finished goods and goods for resale 1 April 2016 £000 Recognised in income £000 Recognised in equity £000 31 March 2017 £000 175 (39) (797) (661) (11) 38 (24) 3 — — 137 137 164 (1) (684) (521) 1 April 2015 £000 Recognised in income £000 Recognised in equity £000 31 March 2016 £000 217 (2) (489) (274) (42) (37) (204) (283) — — (104) (104) 2017 £000 4,903 1,972 35,051 41,926 175 (39) (797) (661) 2016 £000 4,067 1,458 33,913 39,438 In 2017, inventories of £115.5m (2016: £100.0m) were recognised as an expense during the year and included in cost of sales. Inventories have been written down by £1.7m (2016: £1.2m) in line with the Group’s stock provisioning policy. Such write-downs were recognised as an expense during 2017. No significant specific stock provisions have been reversed in the year. No inventories are pledged as security for liabilities. The carrying amount of inventories carried at fair value less costs to sell is £0.6m (2016: £1.0m). 119 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 18 Trade and other receivables Trade receivables Non trade receivables and prepayments Amounts owed by subsidiary undertakings Group Company 2017 £000 47,497 1,863 — 49,360 2016 £000 41,931 1,455 — 43,386 2017 £000 — 183 31,199 31,382 2016 £000 — 41 33,572 33,613 An explanation of credit risk and details of the security held over receivables is provided in note 26. 19 Cash and cash equivalents/bank overdrafts Cash and cash equivalents per Statements of financial position Bank overdrafts per Statements of financial position Cash and cash equivalents per Statements of cash flows 20 Other interest-bearing loans and borrowings Group Company 2017 £000 24,645 — 24,645 2016 £000 17,614 (33) 17,581 2017 £000 2,587 — 2,587 2016 £000 1,406 (2,273) (867) This note provides information about the Group and Company’s existing interest-bearing loans and borrowings. For more information about the security provided by the Group and Company over loans or the Group and Company’s exposure to interest rate, foreign currency and liquidity risk, see note 26. Rate Maturity Current Non-current 2017 £000 2016 £000 2017 £000 2016 £000 Initial loan value Group Asset based lending PSEP acquisition loan VIC unsecured loan Kuhlmann unsecured loan Finance lease liabilities Base + 1.49% Fixed 3.14% EURIBOR + 1.95% EURIBOR + 1.55% Various — 2016 2020 2024 2017-19 Group and Company Facility A VIC acquisition loan EURIBOR + 1.50% 2021 Facility B Revolving Credit Facility LIBOR/EURIBOR + 1.50% 2019/2021 Property Loan Total Group Total Company 21 Trade and other payables LIBOR + 1.25% 2021 Trade payables Amounts payable to subsidiary undertakings Deferred consideration Non-trade payables and accrued expenses Other taxes and social security 120 3,280 — 513 — 2 3,208 7,869 — 14,872 11,077 2017 £000 19,302 — — 15,322 2,521 37,145 3,144 1,170 476 18 2 2,091 10,000 — 16,901 12,091 — — 1,283 — 8 12,830 — 2,100 16,221 14,930 — — 1,665 132 12 14,866 — — 16,675 14,866 Group Company 2016 £000 17,164 — 1,348 13,149 1,369 33,030 2017 £000 — 954 — 2,073 1,335 4,362 2016 £000 — 2,630 1,348 1,623 119 5,720 sluglineTrifast plc Annual Report 201722 Employee benefits Pension plans Defined contribution plans The Group operates a number of defined contribution pension plans, which include stakeholder pension plans whose assets are held separately from those of the Group, in independently administered funds. The total expense relating to these plans in the current year was £1.80m (2016: £1.61m) and represents contributions payable by the Group to the funds. At the end of the financial year, there were outstanding pension contributions of £0.12m (2016: £0.12m), which are included in creditors. Share based payments The Group Share Options (including SAYE plans) provide for an exercise price equal to the average quoted market price of the Group shares on the date of grant. In the case of SAYE, this price is discounted in line with HMRC limits. The vesting period is generally three, five or seven years. The options expire if they remain unexercised after the exercise period has lapsed. Furthermore, options are forfeited if the employee leaves the Group before the options vest, unless for retirement, redundancy or health reasons. The options are equity settled. The number and weighted average exercise prices of share options are as follows: Outstanding at beginning of year Granted during the year Forfeited/lapsed during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year 2017 2016 Weighted average exercise price 0.35 1.07 0.47 0.14 1.00 — Weighted average exercise price 0.26 1.05 0.91 0.33 0.35 0.09 Options 3,567,961 495,264 (32,068) (544,451) 3,486,706 2,024,685 Options 3,486,706 438,175 (141,909) (2,496,555) 1,286,417 — The options outstanding at 31 March 2017 had a weighted average remaining contractual life of 1.7 years (2016: 2.8 years) and exercise prices ranging from £0.25 to £1.07 (2016: £0.085 to £1.05). The weighted average share price at the date of exercise for share options exercised in 2017 was 173.00p (2016: 114.30p). The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on Black Scholes, Binomial Lattice and Monte Carlo models. The contractual life of the option is used as an input into this model. Board deferred equity bonus shares The Board deferred equity bonus shares have been discussed in more detail in the Remuneration report (pages 70 to 86). The number of deferred equity bonus shares is as follows: Outstanding at beginning of year 2017 deferred equity bonus shares awarded 2014, 2015, 2016 Accelerated deferred equity bonus shares exercised* Outstanding at end of year Deferred equity bonus shares 3,372,922 499,900 (1,050,044) 2,822,778 * The accelerated deferred equity bonus shares exercised were for J Barker and T Tan in line with their good leaver statuses on retirement The above includes 95,354 shares for 2016, 144,943 for 2015 and 185,282 for 2014 for T Tan relating to his employment as TR Asia MD. He did not sit on the main plc Board prior to retirement on 31 December 2015. These nil cost options are subject to a three year service period and the fair value has been calculated using the Discounted Dividend model. This is based on expected dividends over the three year term. They are equity settled shares. The weighted average share price at the date of exercise for share options exercised in 2017 was £1.35 (2016: no shares exercised). The options outstanding at 31 March 2017 had a weighted average remaining contractual life of 1.6 years (2016: 2.2 years). 121 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 22 Employee benefits (continued) Senior manager deferred bonus shares The number of deferred bonus shares is as follows: Outstanding at beginning of year Granted during the year Outstanding at end of year Deferred bonus shares — 1,744,094 1,744,094 This is a new nil-cost option scheme implemented in the year. The shares granted in the year are subject to a base award and a multiplier award. The base award requires a three year service period to be achieved and is also subject to personal performance conditions being met during the performance period. The multiplier award is determined by a non-market performance condition. This requires the Group’s underlying organic profit before tax in the financial year 2019 to be £18.5m (representing a compound annual growth rate of 5.0% from 31 March 2016) for the total payout to be 1.5x the base award. A maximum payout of 2.0x the base award can be achieved if this metric is £21.3m (representing a compound annual growth rate of 10.0% from 31 March 2016). If it falls between £18.5m and £21.3m the multiplier applied is calculated on a straight line basis to determine the number of awards. If it is below £18.5m the multiplier used is 1.0x. The awards were granted on 30 December 2016 and are due to vest in December 2019. The method of settlement for these shares are a mixture of equity and cash settled. The fair value has been calculated using the Discounted Dividend model. This was at grant date for the equity settled awards. The fair value for the cash settled awards are remeasured at the reporting date. In line with IFRS2 the amount recognised as an expense has been adjusted to reflect the number of awards for which the service and non- market performance conditions are expected to be met. Type of instrument Valuation model Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes Date of grant 01/10/2010 SAYE 7 Year 01/10/2011 SAYE 7 Year 01/10/2012 SAYE 5 Year 01/10/2012 SAYE 7 Year 01/10/2013 SAYE 5 Year 01/10/2014 SAYE 3 Year 01/10/2014 SAYE 5 Year 01/10/2015 SAYE 3 Year 01/10/2015 SAYE 5 Year 01/10/2016 SAYE 3 Year 01/10/2016 SAYE 5 Year Total Share Options 18/09/2014 Board deferred equity DDM^ 09/09/2015 Board deferred equity DDM^ 15/07/2016 Board deferred equity DDM^ 31/03/2017* Board deferred equity DDM^ SM deferred bonus equity SM deferred bonus cash DDM^ DDM^ 30/12/2016 30/12/2016 Total ^ Discounted Dividend model * Final date of grant will be date of formal agreement No. out- standing on 31 March 2017 6,490 7,920 47,139 5,280 21,000 204,120 111,201 336,304 120,562 366,580 59,821 1,286,417 820,989 740,098 761,791 499,900 Share price on date of grant (£) 0.370 0.410 0.460 0.460 0.680 1.050 1.050 1.140 1.140 1.720 1.720 1.050 1.160 1.350 2.140 1,641,732 2.050 102,362 5,853,289 2.050 Exercise price (£) 0.250 0.450 0.350 0.350 0.500 1.000 1.000 1.050 1.050 1.070 1.070 Expected volatility % 47.86 47.63 48.08 48.08 46.06 35.76 35.76 35.20 34.60 33.83 32.80 Vesting period (yrs) 7.00 7.00 5.00 7.00 5.00 3.00 5.00 3.00 5.00 3.00 5.00 Expected life (yrs) 7.00 7.00 5.00 7.00 5.00 3.00 5.00 3.00 5.00 3.00 5.00 Risk- free rate % 2.43 0.56 1.37 1.93 1.55 1.23 1.73 0.77 1.17 0.40 0.70 Expected annual dividend % 1.36 0.00 1.09 1.09 1.19 1.33 1.33 1.84 1.84 1.63 1.63 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2.79 3.79 4.00 4.00 2.79 3.79 4.00 4.00 n/a n/a n/a n/a 1.33 1.81 2.07 1.40 n/a 3.00 3.00 n/a 1.46 1.96 n/a 3.00 3.00 n/a 1.40 2.05 Fair value (£) 0.20 0.19 0.21 0.24 0.31 0.26 0.33 0.28 0.33 0.68 0.71 1.02 1.11 1.28 2.05 Expected volatility was determined by calculating the historic volatility of the Group’s share price over one, two and three years back from the date of grant. The expected life used in the model has been adjusted, based on management’s best estimate for the effects of non- transferability, exercise restrictions and behavioural considerations. The Group recognised total charges of £1.51m and £1.69m in relation to share based payment transactions in 2017 and 2016 respectively. Of this, £16,412 (2016: £nil) relates to cash settled awards to which a liability is recognised on the balance sheet. The remaining amount relates to equity settled awards. 122 sluglineTrifast plc Annual Report 201722 Employee benefits (continued) As at 31 March 2017, outstanding options to subscribe for ordinary shares of 5p were as follows: Grant date/employees entitled 01/10/10/SAYE 01/10/11/SAYE 01/10/12/SAYE 01/10/13/SAYE 01/10/14/SAYE 01/10/15/SAYE 01/10/16/SAYE Total outstanding options Board deferred equity bonus shares Senior manager deferred bonus shares Total Number of instruments 6,490 7,920 52,419 21,000 315,321 456,866 426,401 1,286,417 2,822,778 1,744,094 5,853,289 Contractual life of options Oct 2017 Oct 2018 Oct 2017, 2019 Oct 2018 Oct 2017, 2019 Oct 2018, 2020 Oct 2019, 2021 Sep 2017, 2018, 2019, Jul 2020 Dec 2019 All options require continued employment from grant date to the later of vesting date or exercise date. 23 Provisions Group Balance at 31 March 2016 Provisions utilised during the year Balance at 31 March 2017 Restructuring costs £000 76 — 76 Dilapidations £000 1,117 (6) 1,111 Total £000 1,193 (6) 1,187 The restructuring provision relates to onerous leases arising from the ‘right-sizing’ of our portfolio of properties within the UK. Dilapidations also relate to properties. Both will be utilised by vacation. In respect of onerous leases and dilapidation provisions, external advisors were used to provide estimates of potential costs and likelihood of sub-letting. The future cash flows were then discounted using risk free rates over the length of the leases. All amounts represent a best estimate of the expected cash outflows although actual amounts paid could be lower or higher. Group Non-current (greater than 1 year) Current (less than 1 year) Balance at 31 March In respect of the Company there are £nil provisions (2016: £nil). Restructuring costs £000 — 76 76 Dilapidations £000 1,111 — 1,111 2017 Total £000 1,111 76 1,187 2016 Total £000 1,117 76 1,193 123 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 24 Capital and reserves Capital and reserves — Group and Company See Statements of changes in equity on pages 97 and 98. Reserves The translation reserve comprises all foreign exchange differences arising from the translation of foreign operations, as well as from the translation of liabilities that hedge the Group’s net investment in foreign subsidiaries. The merger reserve has arisen under Section 612 Companies Act 2006 and is a non-distributable reserve. Share capital In issue at 1 April Shares issued In issue at 31 March — fully paid Number of ordinary shares 2016 2017 116,747,887 116,174,086 3,546,599 573,801 120,294,486 116,747,887 The total number of shares issued during the year was 3,546,599 for a consideration of £0.3m (2016: 573,801 shares for £0.2m). These were settled in cash other than issues of 1,050,044 shares from the deferred equity award scheme due to the early retirement of Jim Barker and Thomas Tan which were issued for nil cost. In FY2016, all shares were issued for cash, excluding 29,350 shares for £0.3m as part of the consideration of the acquisition of Kuhlmann (see note 32). Allotted, called up and fully paid Ordinary shares of 5p each 2017 £000 2016 £000 6,014 5,837 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Dividends During the year the following dividends were recognised and paid by the Group: Final paid 2016 — 2.00p (2015: 1.50p) per qualifying ordinary share Interim paid 2016 — 0.80p (2015: 0.60p) per qualifying ordinary share 2017 £000 2,376 934 3,310 2016 £000 1,743 697 2,440 After the balance sheet date a final dividend of 2.50p per qualifying ordinary share (2016: 2.00p) was proposed by the Directors and an interim dividend of 1.00p (2016: 0.80p) was paid in April 2017. Final proposed 2017 — 2.50p (2016: 2.00p) per qualifying ordinary share Interim paid 2017 — 1.00p (2016: 0.80p) per qualifying ordinary share 2017 £000 3,007 1,203 4,210 2016 £000 2,376 934 3,310 Subject to Shareholder approval at the Annual General Meeting which is to be held on 27 July 2017, the final dividend will be paid on 13 October 2017 to Members on the register at the close of business on 15 September 2017. The ordinary shares will become ex-dividend on 14 September 2017. 124 sluglineTrifast plc Annual Report 2017 25 Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 March 2017 was based on the profit attributable to ordinary shareholders of £12.7m (2016: £10.2m) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2017 of 118,493,886 (2016: 116,388,265), calculated as follows: Weighted average number of ordinary shares Issued ordinary shares at 1 April Effect of shares issued Weighted average number of ordinary shares at 31 March 2017 2016 116,747,887 116,174,086 1,745,999 214,179 118,493,886 116,388,265 Diluted earnings per share The calculation of diluted earnings per share at 31 March 2017 was based on profit attributable to ordinary shareholders of £12.7m (2016: £10.2m) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2017 of 122,143,769 (2016: 120,345,662), calculated as follows: Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares at 31 March Effect of share options on issue Weighted average number of ordinary shares (diluted) at 31 March 2017 2016 118,493,886 116,388,265 3,649,883 3,957,397 122,143,769 120,345,662 The average market value of the Company’s shares for the purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options and deferred equity awards were outstanding. Underlying earnings per share EPS (total) Profit after tax for the financial year Separately disclosed items: IFRS2 share based payment charge Acquired intangible amortisation Net acquisition costs Costs on exercise of executive share options Profit on sale of fixed assets Tax charge on adjusted items^ Underlying profit after tax 2017 EPS Basic 10.72p 1.28p 1.07p — 0.48p (0.17p) (0.16p) 13.22p Earnings £000 12,698 1,512 1,273 — 567 (195) (193) 15,662 Diluted 10.40p 1.24p 1.04p — 0.46p (0.16p) (0.16p) 12.82p Earnings £000 10,225 1,687 974 264 — — (1,132) 12,018 2016 EPS Basic 8.78p 1.45p 0.84p 0.23p — — (0.97p) 10.33p Diluted 8.50p 1.40p 0.81p 0.22p — — (0.94p) 9.99p ^ For the 2016 calculation this includes adjusting for the recognition of the deferred tax asset in TR Fastenings Inc The ‘underlying diluted’ earnings per share is detailed in the above tables. In the Directors’ opinion, this best reflects the underlying performance of the Group and assists in the comparison with the results of earlier years (see note 2). 125 sluglinewww.trifast.comOur Financials NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 26 Financial instruments (a) Fair values of financial instruments There is no significant difference between the fair values and the carrying values shown in the balance sheet. (b) Financial instruments risks Exposure to credit, interest rate and currency risks arises in the normal course of the Group’s business, and the Group continues to monitor and reduce any exposure accordingly. Information has been disclosed relating to the individual Company, only where a material risk exists. (i) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a predetermined amount. Bad debt insurance is taken out on all key accounts where the cost is appropriate given the risk covered. All overdue debts are monitored regularly and customers are put on credit hold if payments are not received on time. The carrying amount of trade receivables represents the maximum credit exposure for the Group. Therefore, the maximum exposure to credit risk at the balance sheet date was £47.50m (2016: £41.93m), being the total carrying amount of trade receivables net of an allowance. Management does not consider there to be any significant unimpaired credit risk in the year-end balance sheet (2016: £nil). At the balance sheet date there were no significant geographic or sector specific concentrations of credit risk. Amounts less than 90 days past due Amounts more than 90 days past due 2017 £000 46,911 586 47,497 2016 £000 41,491 440 41,931 For balances neither past due nor impaired credit quality is considered good and no credit exposures have been identified (2016: nil). When the Group is satisfied that no recovery of the amount owing is possible, at that point the amounts considered irrecoverable are written off against the trade receivables directly. Impairment losses The movement in the allowance for impairment in respect of receivables during the year was as follows: Balance at 1 April Impairment movement Balance at 31 March 2017 £000 (803) (72) (875) 2016 £000 (754) (49) (803) There are no significant losses/bad debts provided for specific customers. Impairments are recognised where a credit exposure has been identified whether amounts are past due or not. (ii) Liquidity and interest risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group holds net debt and hence its main interest and liquidity risks are associated with the maturity of its loans against cash inflows from around the Group. The Group’s objective is to maintain a balance of continuity of funding and flexibility through the use of loans and banking facilities as applicable. 126 sluglineTrifast plc Annual Report 201726 Financial instruments (continued) The Group banking facilities with HSBC comprise: • a term loan facility of €25.0m (‘Facility A’) used to fund the acquisition of VIC (balance at 31 March 2017: €18.75m) • a revolving multi-currency credit facility (‘RCF’) of up to £15.0m with an option to increase the facility by £20m (‘Facility B’) (balance at 31 March 2017: £7.9m) • a property loan of £2.1m (balance at 31 March 2017: £2.1m) The obligations of Trifast under Facility A and Facility B are guaranteed by the UK non-dormant subsidiaries of the Company. Interest on facility A and B is charged at the aggregate rate of LIBOR/EURIBOR plus a margin of 1.50%, in accordance with a formula incorporating the ratio of consolidated net debt against the consolidated underlying EBITDA of the Group. Interest on the property loan is charged at LIBOR plus a margin of 1.25%. Facilities A and B were restructured in October 2016. At the same time, the property loan was taken out, secured on the Group’s premises in Uckfield. In addition the Group has an Asset Based Lending (‘ABL’) facility providing up to a maximum of £15.0m secured over the receivables of TR Fastenings Limited. This facility charges a marginal interest rate of 1.49% above base. In June 2015, VIC took out a €3m repayment loan with MPS in Italy to part fund the de-factoring of their receivables. Interest is charged at 1.95% above EURIBOR until maturity in 2020. Covenant headroom The current and modified UK term facilities are subject to quarterly covenant testing as follows: Interest cover: Debt Service cover: Net Debt cover: Underlying EBITDA to net interest to exceed a ratio of three. Underlying EBITDA to debt service to exceed a ratio of one. Total net debt to underlying EBITDA not to exceed a ratio of 2.75. These covenants currently provide significant headroom and forecasts indicate no breach is anticipated. Liquidity tables The following are the contractual maturities of the existing financial liabilities, excluding bank overdrafts and finance lease liabilities: 2017 Carrying amount/ contractual cash flows^ £000 Less than 1 year £000 1 to 2 years £000 2 to 5 years £000 5 years and over £000 Non-derivative financial liabilities Company Facility A — VIC acquisition loan Facility B — Revolving credit facility Property loan Total Company Group Asset based lending VIC unsecured loan Total Group ^ Excluding interest charges 16,038 7,869 2,100 26,007 3,280 1,796 31,083 3,208 7,869 — 11,077 3,280 513 14,870 4,276 — — 4,276 — 513 4,789 8,554 — 2,100 10,654 — 770 11,424 — — — — — — — 127 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 26 Financial instruments (continued) Finance lease liabilities at 31 March 2017 are £0.01m (2016: £0.01m). The Kuhlmann unsecured loan was paid off in full in October 2016. 2016 Carrying amount/ contractual cash flows^ £000 Less than 1 year £000 1 to 2 years £000 2 to 5 years £000 5 years and over £000 16,957 10,000 26,957 3,144 1,170 2,141 150 2,091 10,000 12,091 3,144 1,170 476 18 3,964 — 3,964 — — 476 18 10,902 — 10,902 — — 1,189 54 33,562 16,899 4,458 12,145 — — — — — — 60 60 Non-derivative financial liabilities Company Facility A — VIC acquisition loan Facility B — Revolving credit facility Total Company Group Asset based lending PSEP acquisition loan VIC unsecured loan Kuhlmann unsecured loan Total Group ^ Excluding interest charges Liquidity headroom Trading forecasts show that the current facilities provide sufficient liquidity headroom. The Group continues to maintain positive relationships with a number of banks and the Directors believe that appropriate facilities will continue to be made available to the Group as and when they are required. Available existing facilities at 31 March 2017 (excluding bank overdrafts and finance lease liabilities): Company Facility A — VIC acquisition loan Facility B — Revolving credit facility Property loan Total Company Group Asset based lending PSEP acquisition loan VIC unsecured loan Kuhlmann unsecured loan Total Group Available facilities £000 2017 Utilised facilities £000 Un-utilised facilities £000 Available facilities £000 2016 Utilised facilities £000 Un-utilised facilities £000 16,038 15,000 2,100 33,138 15,000 — 1,796 — 49,934 16,038 7,869 2,100 26,007 3,280 — 1,796 — 31,083 — 7,131 — 7,131 11,720 — — — 18,851 16,957 10,000 — 26,957 17,000 1,170 2,141 150 47,418 16,957 10,000 — 26,957 3,144 1,170 2,141 150 33,562 — — — — 13,856 — — — 13,856 In addition, an accordion facility of £20.0m as been written into the main HSBC RCF facility agreement, providing potential additional finance under currently agreed terms subject to credit approval. Interest risk The Group monitors closely all loans outstanding which currently incur interest at floating rates. When interest rate exposure risk becomes significant the Group makes use of derivative financial instruments, including interest rate swaps and caps. The only instrument held at the balance sheet date relates to Facility A, where a cap of 1% EURIBOR is in place (2016: 1%). The Group will continue to review this position going forward. In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates the split between fixed and variable interest rates at the balance sheet date. 128 sluglineTrifast plc Annual Report 201726 Financial instruments (continued) Further details of the rates applicable on interest-bearing loans and borrowings is given in note 20. All assets and liabilities in place at year end bear interest at a floating rate and therefore may change within one year. Interest rate table (including bank overdraft and finance lease liabilities) Fixed rate instruments Financial liabilities Variable rate instruments Financial assets Financial liabilities^ Group Company 2017 £000 — — 24,645 (31,093) (6,448) 2016 £000 (1,170) (1,170) 17,614 (32,439) (14,825) 2017 £000 — — 2016 £000 — — 2,587 (26,007) (23,420) 1,406 (29,230) (27,824) ^ £16.0m of the variable rate financial liability balance in the Group and the Company relates to Facility A and has a 1% EURIBOR interest rate cap in place Sensitivity analysis A change of one point in interest rates at the balance sheet date would change equity and profit and loss by £0.3m (2016: £0.2m). This calculation has been applied to risk exposures existing at the balance sheet date. This analysis assumes that all other variables, in particular foreign currency rates, remain consistent and considers the effect of financial instruments with variable interest rates. The analysis is performed on the same basis for the comparative period. (iii) Foreign currency risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than local functional currency. The Group faces additional currency risks arising from monetary financial instruments held in non-functional local currencies. Operational foreign exchange exposure Where possible the Group tries to invoice in the local currency at the respective entity. If this is not possible, then to mitigate any exposure, the Group tries to buy from suppliers and sell to customers in the same currency. Where possible the Group tries to hold the majority of its cash and cash equivalent balances in the local currency at the respective entity. Monetary assets/liabilities The Group continues to monitor exchange rates and buy or sell currencies in order to minimise open exposure to foreign exchange risk. The Group does not speculate on exchange rates. No foreign exchange derivative financial instruments are held at the balance sheet date (2016: a flexible forward contract to cover 50% ($3.0m) of the HY1 2017 €:$ transactional risk within VIC). The 2016 year end value of this contract was not significant and therefore no disclosures have been provided below. The Group will continue to review this position going forward. The €25m VIC acquisition loan and the RCF utilised facility of €9.2m (£7.9m) are net investment hedged against the net asset value of VIC and TR Kuhlmann. Therefore all foreign exchange movements that are being hedged are taken to the translation reserve. All other loans are held in the local currency of the relevant company and so are excluded from the analysis below. The Group’s exposure to foreign currency risk is as follows (based on the carrying amount for cash and cash equivalents held in non-functional currencies): 31 March 2017 Cash and cash equivalents exposure 31 March 2016 Cash and cash equivalents exposure Sterling £000 733 Sterling £000 139 Euro £000 3,213 Euro £000 3,140 US Dollar £000 5,895 US Dollar £000 4,345 Singapore Dollar £000 290 Singapore Dollar £000 409 Total £000 10,131 Total £000 8,033 129 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 26 Financial instruments (continued) Sensitivity analysis Group A 1% change in significant foreign currency balances against local functional currency at 31 March 2017 would have changed equity and profit and loss by the amount shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the same basis for the comparative period. Foreign currency Local currency US Dollar EURO US Dollar US Dollar Sterling Sterling Singapore Dollar Taiwanese Dollar Equity & profit or loss 2016 £000 2017 £000 (2) (19) (31) (20) (2) (21) (21) (14) (c) Capital management The Group’s objectives when managing capital are to ensure that all entities within the Group will be able to continue as going concerns, while maximising the return to shareholders through the optimisation of the debt and equity balance. We regularly review and maintain or adjust the capital structure as appropriate in order to achieve these objectives, consistent with the management of capital for previous periods. The Group has various borrowings and available facilities (see section (b) (ii) Liquidity and interest risk) that contain certain external capital requirements (‘covenants’) that are considered normal for these types of arrangements. As discussed above, we remain comfortably within all such covenants. Identification of the total funding requirement is achieved via a detailed cash flow forecast which is reviewed and updated on a monthly basis. The capital structure of the Group is presented below: Cash and cash equivalents (note 19) Borrowings (note 20) Net debt Equity Capital 27 Operating leases Non-cancellable operating lease rentals are payable as follows: Less than one year Between two and five years More than five years Total 2017 £000 24,645 (31,093) (6,448) (101,698) (108,146) 2016 £000 17,581 (33,576) (15,995) (83,750) (99,745) Group Company 2017 £000 2,910 5,023 3,047 10,980 2016 £000 2,698 5,587 1,282 9,567 2017 £000 31 37 — 68 2016 £000 27 42 — 69 The Group leases a number of offices, warehouse and factory facilities under operating leases. Group During the year £2.53m was recognised as an expense (2016: £2.51m) in the income statement in respect of operating leases. Company During the year £0.04m (2016: £0.05m) was recognised as an expense in the income statement in respect of operating leases. 130 sluglineTrifast plc Annual Report 201728 Contingent liabilities Company The Company has cross guarantees on its UK banking facilities with its three UK subsidiaries. The amount outstanding at the end of the year was £nil (2016: £2.34m). 29 Related parties Group and Company Compensation of key management personnel of the Group Full details of the compensation of key management personnel are given in the Directors’ remuneration report on pages 70 to 86. Transactions with Directors and Directors’ close family relatives During 2017 a relative of the Chairman provided IT/Marketing consultancy services totalling £12,000 (2016: £12,000) on an arm’s length basis and with terms similar to other third party suppliers. The outstanding balance at 31 March 2017 was £1,000 (2016: £1,000). There were no other related party transactions with Directors, or Directors’ close family relatives in the year (2016: £nil). Related party transactions Details of principal subsidiary undertakings, country of registration and principal activities are included in note 33. Company related party transactions with subsidiaries — income/expenditure 2017 TR Fastenings Ltd TR Southern Fasteners Ltd TR Norge AS TR Fastenings AB TR Miller BV Lancaster Fastener Co Ltd TR Hungary Kft Viterie Italia Centrale SPA TR Kuhlmann GmbH TR Asia Investments Pte Ltd TR Fastenings Inc TR Fastenings España – Ingenieria Industrial, S.L. TR Fastenings Poland Sp Zoo Rent income £000 290 — — — — — — — — — — — — 290 Income management fees £000 Loan interest £000 470 17 21 49 67 29 49 104 49 569 55 — — 1,479 — — — — 26 — — — — — — 1 1 28 Total income £000 760 Expenditure management fees £000 399 17 21 49 93 29 49 104 49 569 55 1 1 1,797 — — — — — — — — — — — — 399 Company related party transactions with subsidiaries — income/expenditure 2016 TR Fastenings Ltd TR Southern Fasteners Ltd TR Norge AS TR Fastenings AB TR Miller BV Lancaster Fastener Co Ltd TR Hungary Kft Viterie Italia Centrale SPA TR Asia Investments Pte Ltd TR Fastenings Inc Income management fees £000 Loan interest £000 405 25 31 49 75 28 35 97 498 56 1,299 — — — — 31 — — — — — 31 Rent £000 290 — — — — — — — — — 290 Loan interest £000 — — — — — — — 3 — — — — — 3 Total expense £000 399 — — — — — — 3 — — — — — 402 Expenditure management fees £000 314 Total £000 695 25 31 49 106 28 35 97 498 56 — — — — — — — — — 1,620 314 131 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 29 Related parties (continued) 2017 2016 TR Fastenings Ltd TR Southern Fasteners Ltd TR Norge AS TR Fastenings AB TR Miller Holding B.V. Lancaster Fastener Company Ltd TR Hungary Kft Viterie Italia Centrale SPA TR Kuhlmann GmbH TR Fastenings Inc TR Asia Investments Holdings Pte Ltd TR Formac Pte Ltd TR Formac (Malaysia) SDN Bhd TR Formac (Shanghai) Pte Ltd Special Fasteners Engineering Co Ltd Power Steel & Electro-Plating Works SDN Bhd TR Fastenings España - Ingenieria Industrial, S.L. TR Fastenings Poland Sp Zoo Non-trading dormant subsidiaries Trifast Overseas Holdings Ltd Trifast Holdings B.V. Balances receivables £000 812 4 6 16 408 26 6 23 16 14 472 26 8 8 10 15 350 30 — 28,496 453 31,199 Balances payables £000 — — — — — — — 687 — — — — — — — — — — 267 — — 954 Balances receivables £000 Balances payables £000 621 2 3 4 797 31 3 16 — 5 465 — — — — — — 25 — 31,212 388 33,572 63 — — — — — — — — — — — — — — — — — 267 2,300 — 2,630 All related party transactions are on an arm’s length basis. 30 Subsequent events There are no material adjusting or non-adjusting events subsequent to the balance sheet date. 31 Accounting estimates and judgements The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported annual amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates, although, unless otherwise stated, management do not consider that the range of possible outcomes for each estimate or judgement would result in a material adjustment to the relevant balance sheet carrying value. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The Group believes the principal accounting estimates, assumptions and uncertainties employed in the preparation of these financial statements are: • Recoverable amount of goodwill (note 12) IAS36 Impairment of Assets seeks to ensure that the carrying amount of goodwill is not held at an amount greater than its recoverable amount. The recoverable amount is determined as the higher of fair value less costs to sell and value in use. Management use the value in use model to determine whether goodwill is recoverable. This involves estimating the future performance of a cash generating unit (CGU) that goodwill has been allocated to. The key estimates used in determining the future performance of a CGU are: revenue growth rate, discount rate and terminal EBIT margin. To determine the revenue growth rate and terminal EBIT margin management considers the historic performance of the business, nominal GDP rates in the country of operation and any known or expected changes to occur to existing operations. To calculate an appropriate discount rate, management consider external sources of data based on current market conditions. The assumptions used for each significant CGU relating to these key estimates, including changes to the assumptions applied in previous years, are disclosed in note 12. 132 sluglineTrifast plc Annual Report 2017 31 Accounting estimates and judgements (continued) Note 12 also discloses if a reasonable possible change in a key assumption would cause the carrying amount of goodwill to exceed its recoverable amount for a CGU. From the impairment tests conducted on PSEP, management have identified that if the sales growth was not achieved, it is possible an impairment of £0.3m would need to be recognised. Further details behind the assumptions to arrive at the £0.3m impairment are disclosed in the note. Inventory valuation (note 17) • Inventories are stated at the lower of cost and net realisable value with a provision being made for obsolete and slow moving items. Initially, management makes a judgement on whether an item of inventory should be classified as standard or customer specific. This classification then determines when a provision is recognised. Management then estimates the net realisable value of the stock for each individual classification. A provision is made earlier for customer specific stock (compared to standard) because it carries a greater risk of becoming obsolete or slow moving given the fastenings are designed specifically for an individual customer. The amount of write downs recognised as an expense in the period relating to this estimate is detailed in note 17. • Fair values for IFRS2 charge (note 22) Accounting standards require fair values to be measured for each share based payment scheme and the cost is recognised in the financial statements over the relevant vesting periods. IFRS2 Share-Based Payments is very prescriptive in determining whether an award is equity or cash settled so there is little judgement for management to make here. Judgement is then used to determine which valuation model is appropriate to calculate the fair value and then subsequently the estimates are determined based on the inputs required for each model. These calculations are complex and therefore the Directors use external advisors to determine which is the most appropriate valuation model and subsequently the estimates required. The valuation model used for the Board deferred equity bonus and senior management deferred bonus schemes is the Discounted Dividend model which uses the expected annual dividend as its key estimate. The valuation model used for the SAYE scheme is the Black Scholes model. The key estimates used in this model are: expected volatility, expected life and expected annual dividend. The figures used for these key estimates are disclosed in note 22. Crossing both models there is also an estimate made for the lapse rate to arrive at the number of awards expected to vest. The lapse rate for the Board deferred equity bonus shares is 0% and for the senior management deferred bonus and SAYE schemes it is 3%. A higher lapse rate during the vesting period will reduce the IFRS2 expense - a lower lapse rate will increase the expense. Since the fair values for the equity settled awards are only calculated at the grant date, the estimates used in the calculation will not be updated (except for the number of awards expected to vest). Also, they do not result in an asset or liability being recognised, instead the credit goes direct to equity. The fair value for the cash settled awards are required to be re-measured at each reporting date and therefore the estimates will be updated. The carrying amount of the liability at the period end was £16,412 (2016: £nil). Income taxes (notes 9,15 and 16) • To arrive at the amounts recognised in the balance sheet the Directors are required to estimate certain decisions that are still pending from tax authorities. The pending decisions relate to potential tax exposures from open enquiries. The Directors use external tax advisors to arrive at their decisions regarding these estimates. The final position taken by a tax authority could differ from the estimates made by the Directors which could impact the liability recognised on the balance sheet which is £1.2m (2016: £1.2m). As explained in note 9 the open enquiries are expected to be settled within a year. The amount provided is at the upper end of the range of possible outcomes and we do not anticipate the final settlement significantly exceeding the amount recognised. 133 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 32 Acquisition of Kuhlmann Befestigungselemente GmbH & Co. KG (‘Kuhlmann’) Please note all figures below are as disclosed in the 31 March 2016 Annual Report. Therefore the figures in sterling are using applicate exchange rates relating to the year ended 31 March 2016. On 1 October 2015, the Group acquired Kuhlmann for a total consideration of €8.5m (£6.2m). The initial amount of €6.8m (£4.9m) was paid on completion in cash and €0.04m (£0.03m) was satisfied by the allotment of 29,350 ordinary shares in the Company. Consideration of €1.7m (1 October 2015: £1.2m, 31 March 2016: £1.3m) was deferred for 12 months with payment made in September 2016. The cash consideration was met from the Group’s existing bank facilities. The Group is investing in Kuhlmann to further develop the opportunities in the German market and the acquisition of Kuhlmann was earnings enhancing in the first full year of ownership. Based in Verl, close to Bielefeld, Germany, Kuhlmann was founded in 1996 and employs 18 staff. It is a well-respected highly efficient distributor of industrial fastenings within the domestic German market. Its emphasis is on delivering high quality products and services to its well- established longstanding customer base in the principal sectors of machinery and plant engineering, sheet metal processing and industrial. Kuhlmann’s management team and previous owners, Frank Niggebrügge, Eric Hütter and Peter Henning, continue to run the business with the support of the operational management team and staff who will remain within the business. For the year ended 31 December 2014, Kuhlmann reported revenue of €6.7m (£5.4m) and profit before tax of €1.7m (£1.4m). Gross assets at the same date were €1.4m (£1.1m). In the six months since acquiring Kuhlmann to 31 March 2016, the subsidiary contributed £0.5m to the consolidated underlying operating profit for the year and £2.5m to the Group’s revenue. If the acquisition had occurred on 1 April 2015, Group revenue would have increased by an estimated £2.4m and consolidated operating profit would have been increased by an estimated £0.6m. In determining these amounts management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same as if the acquisition had occurred on 1 April 2015. The acquisition had the following effects on the Group’s assets and liabilities. Property, plant and equipment Intangible assets Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax liabilities Net identifiable assets and liabilities Consideration paid: Initial cash price paid Equity instruments issued Deferred consideration at fair value Total consideration Goodwill on acquisition Provisional fair value disclosed^ £000 176 3,651 463 420 583 (297) (1,011) 3,985 Adjustments to provisional fair values £000 (2) — (6) 3 — (18) 1,011 988 Recognised fair value £000 174 3,651 457 423 583 (315) — 4,973 4,897 31 1,232 6,160 2,175 — — — — (988) 4,897 31 1,232 6,160 1,187 ^ These amounts were disclosed in the Half Yearly Financial Report for the six months ended 30 September 2015 134 sluglineTrifast plc Annual Report 201732 Acquisition of Kuhlmann Befestigungselemente GmbH & Co. KG (‘Kuhlmann’) (continued) The fair value of trade receivables is £0.4m. The gross contractual cash flows to be collected are £0.4m. The best estimate at acquisition date of the contractual cash flows not to be collected is £nil. The values previously disclosed in the Half Yearly Financial Report were provisional and were given for information purposes only since the acquisition was completed so close to 30 September 2015. An in-depth analysis has now been completed and led to adjustments to provisional fair values as disclosed in the table above. As part of this analysis it was identified that a tax deduction can be obtained locally for amortisation relating to acquired intangibles. Therefore on acquisition there was no temporary difference between the tax base and accounting net book value of these assets and hence no deferred tax liability was recognised. Intangible assets that arose on the acquisition include the following: • £3.3m of customer relationships, with an amortisation period deemed to be 10 years • £0.4m of other intangibles, with an amortisation period deemed to be under 1 year Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Locally a tax deduction is available for Goodwill which is amortised over 15 years. It mostly represents potential synergies, e.g. cross-selling opportunities between Kuhlmann and the Group, and Kuhlmann’s assembled workforce. Effect of acquisition The Group incurred costs of £0.26m in relation to the acquisition of Kuhlmann which have been included in administrative expenses in the Group’s consolidated statement of comprehensive income and form part of separately disclosed items, see note 2. The foreign exchange losses of £0.55m made on the €1.7m deferred consideration and €6.8m external loan are part of the Group’s net investment hedging and therefore have been recognised in the exchange reserve. 135 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 33 Trifast plc subsidiaries Name Europe Trifast Overseas Holdings Ltd Trifast Holdings B.V. TR Fastenings Ltd TR Southern Fasteners Ltd TR Norge AS TR Miller Holding B.V. Lancaster Fastener Company Ltd TR Fastenings AB TR Hungary Kft TR Fastenings Poland Sp. Z o.o Viterie Italia Centrale SPA VIC Sp. Z o.o. TR Kuhlmann GmbH TR Fastenings España - Ingenieria Industrial, S.L. Asia TR Asia Investment Holdings Pte Ltd TR Formac Pte Ltd TR Formac (Malaysia) SDN Bhd TR Formac (Shanghai) Pte Ltd Special Fasteners Engineering Co Ltd TR Formac Fastenings Private Ltd Country of incorporation or registration Issued and fully paid share capital Principal activity Group Company Office Address Percentage of ordinary shares held Holding Company £112 €18,428 Holding Company £10,200 Manufacture and distribution of fastenings Norway NOK 300,000 €254 €45,378 £40,000 SEK 1,500,000 HUF 68,257,300 PLN 50,000 Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings United Kingdom Netherlands United Kingdom Republic of Ireland Netherlands United Kingdom Sweden Hungary Poland Italy Poland Germany Spain Singapore Singapore €187,200 Manufacture and distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings PLN 50,000 €25,000 €3,085 S$4 Holding Company S$315,000 Manufacture and distribution of fastenings — 57 Senoko Road, Singapore 758121 — 57 Senoko Road, Singapore 758121 Malaysia MYR 480,000 Manufacture and distribution of fastenings — 1 & 3 Lorong lks Juru 11, Taman Industri Ringan Juru, 14100 Simpang Ampat, Seberang Perai (S), Pulau Pinang, Malaysia China US$200,000 Distribution of fastenings Taiwan TW$100,000,000 Manufacture and distribution of fastenings India INR 18,850,000 Distribution of fastenings — No. 1222, JinHu Road, Pudong, Shanghai, PR China. 201206 — 9F.-3 No. 366, Bo Ai 2nd Rd., Kaohsiung 81358, Taiwan, R.O.C — Plot No:180, Door No:2, 10th Cross Street, Mangala Nagar, Porur, Chennai-600 116, India Power Steel & Electro-Plating Works SDN Bhd Malaysia MYR 4,586,523 Manufacture and distribution of fastenings — Jalan Pengapit 15/19, Section 15, 40000 Shah Alam, Selangor Darul Ehsan, Malaysia TR Formac Co. Ltd Thailand THB 20,000,000 Distribution of fastenings — 29/1, Piya Place Langsuan, 6th Floor, Unit no.6H, Soi Langsuan, Ploenchit Rd., Lumpini, Patumwan, Bangkok 10330 Thailand Americas TR Fastenings Inc Dormants Trifast Systems Ltd Ivor Green (Exports) Ltd Charles Stringer’s Sons & Co.Limited Fastech (Scotland) Ltd Micro Screws & Tools Ltd Trifast International Ltd Rollthread International Ltd TR Group Ltd Fastener Techniques Ltd Trifix Ltd Serco Ryan Ltd TR Europe Ltd Trifast Qualifying Employee Share Ownership Trustee Ltd KNH Verwaltungs GmbH USA US$1,168,063 Distribution of fastenings 100% — 11255 Windfern Road, Houston, TX. 77064 United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom £100 £5,000 £18,000 £100 £1,000 £2 £10,000 £100 £73,939 £100 £3,000 £2,500 £2 Germany €1 Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% — Lerchenweg 99, 33415 Verl, Germany The only changes in ownership during the year were due to the addition of TR Fastenings España - Ingenieria Industrial S.L. and the transfer in ownership of TR Fastenings Inc to Trifast Overseas Holdings Ltd from Trifast Plc. All of the above subsidiaries have been included in the Group’s financial statements. 100% International House, Stanley Boulevard, Hamilton Intnl Technology Park, Blantyre, Glasgow, Scotland, G72 0BN 136 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK — Prins Bernhardplein 200, 1097 JB Amsterdam, Netherlands — Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK — Mallow Business & Technology Park, Mallow, Co. Cork, P51 HV12, Republic of Ireland — Masteveien 8, NO-1481 Hagan, Norway — Kelvinstraat 5, 7575 AS, Oldenzaal, Netherlands — Stevant Way, Northgate, White Lund Industrial Estate, Morecambe, LA3 3PU, UK — Box 4133, Smedjegatan 6, 7tr, SE-131 04 Nacka, Sweden — Szigetszentmiklós, Leshegy út 8, 2310 Hungary 100% Al Jerozolimskie 56c, 00-803 Warszawa, Poland — Via Industriale, 19, 06022 Fossato Di Vico (PG), Italy — Wroclaw, ul Wiosenna 14/2, Poland — Lerchenweg 99, 33415 Verl, Germany — Calle De La CiIencia 43, Viladecans, Barcelona, CP 08840, Spain 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% sluglineTrifast plc Annual Report 2017Country of incorporation Issued and fully or registration paid share capital Norway NOK 300,000 £112 €18,428 €254 €45,378 £40,000 SEK 1,500,000 HUF 68,257,300 PLN 50,000 PLN 50,000 €25,000 €3,085 United Kingdom Netherlands United Kingdom Republic of Ireland Netherlands United Kingdom Sweden Hungary Poland Italy Poland Germany Spain Singapore Singapore £10,200 Manufacture and distribution of fastenings Holding Company Holding Company Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings Distribution of fastenings €187,200 Manufacture and distribution of fastenings TR Fastenings España - Ingenieria Industrial, S.L. Asia TR Asia Investment Holdings Pte Ltd TR Formac Pte Ltd TR Formac (Malaysia) SDN Bhd TR Formac (Shanghai) Pte Ltd Special Fasteners Engineering Co Ltd TR Formac Fastenings Private Ltd S$4 Holding Company S$315,000 Manufacture and distribution of fastenings Malaysia MYR 480,000 Manufacture and distribution of fastenings China US$200,000 Distribution of fastenings Taiwan TW$100,000,000 Manufacture and distribution of fastenings India INR 18,850,000 Distribution of fastenings Power Steel & Electro-Plating Works SDN Bhd Malaysia MYR 4,586,523 Manufacture and distribution of fastenings Thailand THB 20,000,000 Distribution of fastenings 33 Trifast plc subsidiaries Name Europe Trifast Overseas Holdings Ltd Trifast Holdings B.V. TR Fastenings Ltd TR Southern Fasteners Ltd TR Norge AS TR Miller Holding B.V. Lancaster Fastener Company Ltd TR Fastenings AB TR Hungary Kft TR Fastenings Poland Sp. Z o.o Viterie Italia Centrale SPA VIC Sp. Z o.o. TR Kuhlmann GmbH TR Formac Co. Ltd Americas TR Fastenings Inc Dormants Trifast Systems Ltd Ivor Green (Exports) Ltd Charles Stringer’s Sons & Co.Limited Fastech (Scotland) Ltd Micro Screws & Tools Ltd Trifast International Ltd Rollthread International Ltd TR Group Ltd Fastener Techniques Ltd Trifix Ltd Serco Ryan Ltd TR Europe Ltd Trifast Qualifying Employee Share Ownership Trustee Ltd KNH Verwaltungs GmbH The only changes in ownership during the year were due to the addition of TR Fastenings España - Ingenieria Industrial S.L. and the transfer in ownership of TR Fastenings Inc to Trifast Overseas Holdings Ltd from Trifast Plc. All of the above subsidiaries have been included in the Group’s financial statements. Principal activity Group Company Office Address Percentage of ordinary shares held 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK — Prins Bernhardplein 200, 1097 JB Amsterdam, Netherlands — Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK — Mallow Business & Technology Park, Mallow, Co. Cork, P51 HV12, Republic of Ireland — Masteveien 8, NO-1481 Hagan, Norway — Kelvinstraat 5, 7575 AS, Oldenzaal, Netherlands — Stevant Way, Northgate, White Lund Industrial Estate, Morecambe, LA3 3PU, UK — Box 4133, Smedjegatan 6, 7tr, SE-131 04 Nacka, Sweden — Szigetszentmiklós, Leshegy út 8, 2310 Hungary 100% Al Jerozolimskie 56c, 00-803 Warszawa, Poland — Via Industriale, 19, 06022 Fossato Di Vico (PG), Italy — Wroclaw, ul Wiosenna 14/2, Poland — Lerchenweg 99, 33415 Verl, Germany — Calle De La CiIencia 43, Viladecans, Barcelona, CP 08840, Spain — 57 Senoko Road, Singapore 758121 — 57 Senoko Road, Singapore 758121 — 1 & 3 Lorong lks Juru 11, Taman Industri Ringan Juru, 14100 Simpang Ampat, Seberang Perai (S), Pulau Pinang, Malaysia — No. 1222, JinHu Road, Pudong, Shanghai, PR China. 201206 — 9F.-3 No. 366, Bo Ai 2nd Rd., Kaohsiung 81358, Taiwan, R.O.C — Plot No:180, Door No:2, 10th Cross Street, Mangala Nagar, Porur, Chennai-600 116, India — Jalan Pengapit 15/19, Section 15, 40000 Shah Alam, Selangor Darul Ehsan, Malaysia — 29/1, Piya Place Langsuan, 6th Floor, Unit no.6H, Soi Langsuan, Ploenchit Rd., Lumpini, Patumwan, Bangkok 10330 Thailand USA US$1,168,063 Distribution of fastenings 100% — 11255 Windfern Road, Houston, TX. 77064 United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Germany £100 £5,000 £18,000 £100 £1,000 £2 £10,000 £100 £73,939 £100 £3,000 £2,500 £2 €1 Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% International House, Stanley Boulevard, Hamilton Intnl Technology Park, Blantyre, Glasgow, Scotland, G72 0BN 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW, UK 100% 100% — Lerchenweg 99, 33415 Verl, Germany 137 sluglinewww.trifast.comOur FinancialsNOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2017 34 Alternative Performance Measures The Annual Report includes both GAAP measures and Alternative Performance Measures (APMs). The latter of which are considered by management to better allow the readers of the accounts to understand the underlying performance of the Group. A number of these APMs are used by management to measure the KPIs of the business (see pages 28 and 29 for Key Performance Indicators) and are therefore aligned to the Group’s strategic aims. They are also used at Board level to monitor financial performance throughout the year. The APMs used in the Annual Report (including the basis of calculation, assumptions, use and relevance) are detailed in note 2 (underlying profit before tax, EBITDA and underlying EBITDA) and below. • Constant Exchange Rate (CER) figures These are used predominantly in the Business review and give the readers a better understanding of the performance of the Group, regions and entities from a trading perspective. They have been calculated by translating the 2017 income statement results (of subsidiaries whose presentational currency is not sterling) using FY2016 average annual exchange rates to provide a comparison which removes the foreign currency translational impact. The impact of translational gains and losses made on non-functional currency net assets held around the Group have not been removed. • Underlying diluted EPS A key measure for the Group as it is one of the measures used to set the Directors’ variable remuneration, as disclosed in the Directors’ remuneration report. The calculation has been disclosed in note 25. • Return on capital employed (ROCE) Return on capital employed is a key metric used by investors to understand how efficient the Group is with its capital employed. The calculation is detailed in the Glossary on page 145. The numerator is underlying EBIT which has been reconciled to operating profit below. Note 2 explains why the separately disclosed items have been removed to aid understanding of the underlying performance of the Group. Underlying EBIT/Underlying operating profit Separately disclosed items within administrative expenses IFRS2 share based payment charge Acquired intangible amortisation Net acquisition costs Profit on sale of fixed assets Costs on exercise of executive share options Operating profit Note 22 32 2017 £000 21,018 (1,512) (1,273) — 195 (567) 17,861 2016 £000 16,793 (1,687) (974) (264) — — 13,868 • Normalised net debt The calculation, assumptions, use and relevance are disclosed in the net debt section of the Business review on page 36. • Underlying cash conversion as a percentage of underlying EBITDA This is another key metric used by investors to understand how effective the Group were at converting profit into cash. Since the underlying cash conversion is compared to underlying EBITDA, which has removed the impact of IFRS2 share based payment charges (see note 2), the impact of these have also been removed from the underlying cash conversion. The adjustments made to arrive at underlying cash conversion from cash generated from operations are detailed below. To reconcile operating profit to underlying EBITDA, see note 2. Underlying cash conversion Costs on exercise of executive share options Movement in trade payables due to exercise of share options Cash generated from operations 2017 £000 22,249 (567) 1,205 22,887 2016 £000 15,873 — — 15,873 138 sluglineTrifast plc Annual Report 2017 34 Alternative performance measures (continued) • Underlying effective tax rate This is used in the underlying diluted EPS calculation. It removes the tax impact of separately disclosed items in the year to arrive at a tax rate based on the underlying profit before tax. One off tax adjustments have also been removed from the calculation as they are unlikely to repeat and therefore do not reflect recurring trading performance. In FY2017 the one-off adjustment relates to a deferred tax asset not recognised for losses in the year due to significant tax deductions available from the exercise of executive share options. In FY2016 the adjustment related to the recognition of deferred tax assets in TR Fastenings Inc on the grounds that recovery was considered probable. Profit before tax Separately disclosed items Underlying profit before tax 2017 Profit impact £000 Tax impact £000 17,340 3,157 20,497 (4,642) (192) (4,834) ETR % 26.8% 6.1% 23.6% 2016 Profit impact £000 13,077 2,925 16,002 Tax impact £000 (2,852) (1,132) (3,984) ETR % 21.8% 38.7% 24.9% 139 sluglinewww.trifast.comOur Financials140 sluglineTrifast plc Annual Report 2017SHAREHOLDER INFORMATION Investor perception study Glossary of terms Five year history Company and advisers Financial calendar 142 144 146 147 148 141 sluglinewww.trifast.comOur FinancialsINVESTOR PERCEPTION STUDY Ian Robinson DuplexIR DuplexIR investor perceptions report for Trifast plc The results of the survey and the one to one conversations suggested that the balance between manufacturing and distribution appears to be well understood by both current investors and analysts. The role of acquisitions within the company also appears to be appreciated. Importantly, there was no evidence that Trifast is seen by investor or analysts as simply an industry consolidator. Although current investors and analysts generally expect further acquisitions at some point, the impression was not given that anything was anticipated or demanded or required in the short term. Even though they are not seen as a necessary part of the business model, acquisitions are clearly seen as part of the longer term investment case, and something that management are good at. With regard to how the investor and analysts assess the value of Trifast, there was a clear bias towards distributors rather than manufacturers as valuation comparators. Manufacturing business are typically more highly valued by institutional investors than distributors and it appears some aspects of Trifast’s value could well be being overlooked by the market as a whole. The responses to questions regarding what extra information investors and analysts require also suggest that some aspects of the business, such as the strength of the relationships with customer and value add of working at design stages, might be given greater value by the market, if further supporting evidence was presented. As part of its compliance with the UK Governance Code, Trifast engaged DuplexIR to undertake an investor perceptions study. The broader purpose of the study was to ensure that Trifast’s directors, both executive and non-executive had a full and clear understanding of how the investment community views and understands Trifast. At a more detailed level the objectives were to: • Examine how the equity market understands Trifast’s operations, finances and strategy – considering in greater detail the mix between manufacturing and distribution, and also the role that acquisitions play • Understand how the market views Trifast as an investment – to understand whether all areas of value are being appreciated, that broader expectations are not unrealistic, and that areas of risks and uncertainty are not being ignored • Review how investors and analysts regards management and their performance • Consider what can be done to improve investor communications and shareholder engagement The study was conducted over a period of four weeks, from 26 September to 21 October 2016, in two parts. The first part was a web based survey of institutional investors and broking investment analysts using the DuplexIR investor feedback platform. The second was a number of one to one discussions with a selection of these investors and analysts. The questions were set out by DuplexIR, in consultation with the senior management of Trifast. Survey responses were obtained from all but two of Trifast’s leading active institutional shareholders, seven analysts, and four non-holding institutions. The one to one interviews were conducted with three analysts and three institutional shareholders. 142 sluglineTrifast plc Annual Report 2017Shareholder Information “ All participants in the study were happy with the amount of access to management and there was a clear view that strategy, operational objectives and guidance have all been well set and communicated in recent years” As shown in the chart below, the survey responses showed that the management are one of the main investment attractions of Trifast and the one to one discussions reaffirmed this. Perhaps inevitably, given his historical role in the growth and success of Trifast, Malcolm Diamond was mentioned more often than the current management in on line comments and one to one discussion. The overall message was that investors and analysts alike were happy to see the baton passed, but a number of participants expressed a wish for Malcolm to remain involved in some way going forward. Across the survey and interviews there were no significant issues identified with the way that Trifast communicates with investors. Those suggestions that there were for improvement in investor relations mainly related to the potential benefits of a capital markets day or site visit, and to the desire for some greater visibility into exactly where Trifast is adding value for its customers. All participants in the study were happy with the amount of access to management and there was a clear view that strategy, operational objectives and guidance have all been well set and communicated in recent years. Survey question – Which of the following (maximum 5 selections) are key investment attractions of Trifast? 20 18 16 14 12 10 8 6 4 2 0 Low valuation Growth potential not reﬂected in market forecasts Exposure to attractive industries Market position/ proposition Good returns (ROIC, EVA, ROCE or ROE) Cash generation Anticipation of corporate action Management Dividend or other cash distribution Source: DuplexIR survey 143 sluglinewww.trifast.comGLOSSARY OF TERMS AER Actual Exchange Rate. Assets Anything owned by the Company having a monetary value; e.g. fixed assets such as buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and potentially including intangibles such as trademarks and brand names, and current assets, such as inventory, debtors and cash. Average Capital Employed Averaged using month-end balances and opening capital employed. Capital employed is the sum of net assets and net debt. Balance sheet (or Statements of financial position) These provide a ‘snapshot’ at a particular date in time of who owns what in the Company, and what assets and debts represent the value of the Company. The balance sheet is where to look for information about short-term and long-term debts, gearing (the ratio of debt to equity), reserves, inventory values (materials and finished goods), capital assets, cash, and the value of shareholders’ funds. The balance sheet equation is: Depreciation The proportion of cost relating to a capital item, over an agreed period, (based on the useful life of the asset), for example, a piece of equipment costing £10,000 having a life of five years might be depreciated over five years at a cost of £2,000 per year. This would be shown in the income statement as a depreciation cost of £2,000 per year; the balance sheet would show an asset value of £8,000 at the end of year one, reducing by £2,000 per year; and the cash flow statement would show all £10,000 being used to pay for it in year one. Dividend A dividend is a payment made per share, to a company’s shareholders and is based on the profits of the year, but not necessarily all of the profits. Normally a half year dividend is recommended by a company board whilst the final dividend for the year is proposed by the board of directors and shareholders consider and vote on this at the Annual General Meeting. Dividend Cover Underlying diluted earnings per share over proposed dividend per share in the year. Capital + Liabilities (where the money came from) = Assets (where the money is now) CAGR Compounded Annual Growth Rate. Cash flow The movement of cash in and out of a business from day-to-day direct trading and other non-trading effects, such as capital expenditure, tax and dividend payments. Category ‘C’ components Low value components that are wrapped up into our supply proposition for a customer. CER Constant Exchange Rate. Current assets Cash and anything that is expected to be converted into cash within 12 months of the balance sheet date. For example debtors or inventory. Current liabilities Money owed by the business that is generally due for payment within 12 months of balance sheet date. For example: creditors, bank overdrafts or tax. Earnings before There are several ‘Earnings before…..’ ratios. The key ones being: • PBT • EBIT • EBITDA Profit/earnings before taxes Earnings before interest and taxes Earnings before interest, taxes, depreciation, and amortisation • Underlying Profit before separately disclosed items (see note 2) Earnings relate to operating and non-operating profits (e.g. interest, dividends received from other investments). GAAP Generally Accepted Accounting Practice. Gearing The ratio of debt to equity, usually the relationship between long-term borrowings and shareholders’ funds. Goodwill Any surplus money paid to acquire a company that exceeds its net assets fair value. ICAEW Institute of Chartered Accountants in England & Wales. 144 sluglineTrifast plc Annual Report 2017 Shareholder Information Intellectual Property (‘IP’) This is an intangible asset such as a copyright or patent. Copyright is the exclusive right to produce copies and to control an original work and is granted by law for a specified number of years. A patent is a government grant to an inventor, assuring the inventor the sole right to make, use and sell an invention for a limited period. Multinational OEMs We use this term to include all Original Equipment Manufacturers (OEMs), Tier 1 suppliers in the automotive sector and relevant key sub- contractors in the other sectors we service. P/E ratio (price per earnings) The P/E ratio is an important indicator as to how the investing market views the health, performance, prospects and investment risk of a plc. The P/E ratio is arrived at by dividing the share price by the underlying diluted earnings per share. Profit The surplus remaining after total costs are deducted from total revenue. Profit and loss account (P&L) (or income statement) The P&L shows how well the company has performed in its trading activities and would cover a trading account for a period. The P&L shows profit performance and typically shows sales revenue, cost of sales/cost of goods sold, generally a gross profit margin, fixed overheads and/or operating expenses, and then a profit before tax figure (‘PBT’). Retained profit/earnings Business profit which is after tax and dividend payments to shareholders; retained by the business and used for reinvestment. Reserves The accumulated and retained difference between profits and losses year-on-year since the company’s formation. Return on capital employed (‘ROCE’) A fundamental financial performance measure. A percentage figure representing profit before interest and tax against the money that is invested in the business. Underlying EBIT ÷ average capital employed (net assets + net debt) × 100 = ROCE Statements of cash flow The statements of cash flows show the movement and availability of cash through and to the business over a given period. For any business ‘cash is king’ and essential to meet payments for example to suppliers, staff and other creditors. Share capital The balance sheet nominal value paid into the company by shareholders at the time(s) shares were issued. Shareholders’ funds A measure of the shareholders’ total interest in the company, represented by the total share capital plus reserves. Trademark The name or a symbol used by a manufacturer or dealer to distinguish its products from those of competitors. A registered trademark is one that is officially registered and legally protected. Working capital Current assets less current liabilities, representing the required investment, continually circulating, to finance inventory, debtors, and work in progress. 145 sluglinewww.trifast.comFIVE YEAR HISTORY Five year history - ‘A growth story’ Revenue GP% Underlying operating profit* Underlying operating profit margin* Operating profit Operating profit margin Underlying EBITDA* Underlying PBT* PBT Underlying ROCE %* Dividend per share Dividend increase % Dividend cover* Underlying diluted EPS* Diluted EPS Net debt Underlying cash conversion % of underlying EBITDA* Share price at 31 March * Before separately disclosed items, see note 2 2013 £121.5m 26.0% £8.0m 6.6% £7.2m 5.9% £9.2m £7.3m £6.4m 12.1% 0.80p 60.0% 5.9× 4.73p 4.18p £5.2m 85.3% 57p 2014 £129.8m 27.7% £9.7m 7.5% £9.4m 7.2% £10.8m £9.2m £8.9m 16.3% 1.40p 75.0% 4.3× 5.95p 5.76p (£2.0m) 109.5% 87p 2015 £154.7m 2016 £161.4m 2017 £186.5m 29.0% £15.3m 9.9% £12.8m 8.3% £16.5m £14.3m £11.8m 18.6% 2.10p 50.0% 4.1× 8.68p 7.07p £13.4m 50.2% 103p 29.7% £16.8m 10.4% £13.9m 8.6% £18.2m £16.0m £13.1m 18.5% 2.80p 33.3% 3.6x 9.99p 8.50p £16.0m 88.9% 127p 31.1% £21.0m 11.3% £17.9m 9.6% £22.9m £20.5m £17.3m 19.9% 3.50p 25.0% 3.7x 12.82p 10.40p £6.4m 97.3% 211p 146 sluglineTrifast plc Annual Report 2017COMPANY AND ADVISERS Shareholder Information TRIFAST PLC Incorporated in the United Kingdom Registered number: 0191797 HEAD OFFICE AND REGISTERED OFFICE Trifast House, Bellbrook Park, Uckfield, TN22 1QW Telephone: +44 (0)1825 747366 AUDIT COMMITTEE Neil Warner (Chairman) Jonathan Shearman Scott Mac Meekin REMUNERATION COMMITTEE Jonathan Shearman (Chairman) Neil Warner Scott Mac Meekin NOMINATIONS COMMITTEE Malcolm Diamond MBE (Chairman) Jonathan Shearman Neil Warner Mark Belton COMPANY SECRETARY Lyndsey Case ADVISERS REGISTERED AUDITORS KPMG LLP 1 Forest Gate, Brighton Road, Crawley, RH11 9PT CORPORATE STOCKBROKER Peel Hunt LLP Moor House, 120 London Wall London, EC2Y 5ET SOLICITORS Charles Russell Speechlys, LLP Compass House, Lypiatt Road, Cheltenham, GL50 2QJ REGISTRARS Computershare Investor Services plc The Pavilions, Bridgwater Road, Bristol, BS13 8AE FINANCIAL PR TooleyStreet Communications Regent Court, 68 Caroline Street, Birmingham, B3 1UG 147 sluglinewww.trifast.comFINANCIAL CALENDAR AGM 27 July 2017 Final dividend payment date 13 October 2017 Half-yearly results November 2017 Trading update February 2018 Financial year end 31 March 2018 Pre-close trading update April 2018 Preliminary results June 2018 148 sluglineTrifast plc Annual Report 2017www.jonesandpalmer.co.uk sluglinesluglineT r i f a s t p l c A n n u a l R e p o r t f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 7 Trifast plc Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW Tel: +44 (0)1825 747366 Fax: +44 (0)1825 747368 sluglineslugline

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